It’s sometimes said that small businesses are the engine room of the economy. They employ almost half of Australian workers and make up more than 95 percent of all businesses. That engine room appeared to be humming in June, when small businesses added jobs at a faster pace than that of broader Australia, based on new Xero data.
Small businesses with employees saw their headcount rise by 1.3 percent month on month in June, according to the most recent data from Xero. That compares with a gain of 0.22 percent for employers of all sizes, according to ABS trend figures.
For insights about employment, we analysed small businesses on Xero with paid workers, drawing a sample from an Australian base of 500,000 subscribers whose data was anonymized and aggregated. Then we measured how the number of people on the payroll of these businesses changed from month to month.
While small businesses enjoyed faster June jobs growth than the nation as a whole, a longer-term look reveals that small business trends can be volatile. This finding, based on the Xero data, is borne out by similar up and downs in ABS figures. According to Xero data, small business employment growth hit a one-year high of 2.8% in March; that was preceded just two months earlier by a 2.7% drop in January payroll numbers.
In fact, the month following Christmas is typically when employment drops most sharply for small businesses. In the past three years, employers on Xero have seen headcount fall as much as 4.4% in this quiet period. While full-time employment hardly budges in January, part-time and casual roles can tumble as much as 4.1% and 9.6%, respectively, which depresses the overall figure.
The employment lull is especially evident in construction, the fastest-growing sector among new Xero subscribers during the year through March 31, 2017.
“Our sites shut down for the Christmas and New Year’s break, then we don’t get fully started again until February,” says Clinton Lloyd, a co-founder of Lloyd Group, which specialises in bespoke commercial construction along the eastern seaboard of Australia. “We have a soft start in mid-January, but it’s quickly interrupted by the Australia Day holiday at the end of the month.”
Perhaps further damping down the January picture is a lack of cash flow – and cash is a prerequisite for making payroll. A Xero analysis shows it’s the month when small businesses’ outstanding invoices are most likely to go unpaid.
And of course there’s the churn of employees in high-growth industries. Construction spawned more new Australian businesses than any other sector for the year to the end of June 2016, according to ABS figures. It added nearly 60,000 new ventures, largely fuelled by domestic building in capital cities.
“Retaining employees is a challenge,” says Mick O’Shea, owner of Unity Building Solutions, a Newcastle, New South Wales company specialising in bathroom and kitchen renovations. “I’ve lost four workers and hired four this year alone. It’s an employees’ market.”
When comparing state employment trends, New South Wales and Victoria tended to be less volatile than their peers. Even in Victoria, small-business employee growth went as high as 3.2% in March, and headcount contracted as much as 3.5% in January, based on Xero data.
While trends in the two states track closely, New South Wales seemed to slightly lead Victoria in directional changes in small-business employment over the past year. And when the two states reached their annual peaks and troughs, Victoria tended to slightly exceed New South Wales in both directions.
Interestingly, small businesses nationally seem to consistently show a decline in headcount during April, based on three years worth of Xero data. In fact, April tends to show the biggest consistent contraction outside of January. In the months ahead, we hope to delve into the reasons for this movement in employee numbers. Stay tuned, and sign up for our email list to be alerted when the latest monthly Xero Small Business Insights is released.