New Xero data shows Australian small business resilience in the face of high inflation

Melbourne —27 July 2023 —Xero, the global small business platform, today released its latest data on the health of Australia’s small business economy from the Xero Small Business Index, covering February through to June 2023.

Based on aggregated and anonymised transactions from hundreds of thousands of small businesses, the Xero Small Business Index averaged 120 points in the first five months of the year - above the 112 point average of the last three months of 2022. While sales, jobs and wages growth have slowed in the first half of 2023, overall conditions remain better than the long-term average suggesting Australian small businesses have been resilient to recent economic challenges.

Looking at the Index’s key sub-metrics, sales growth slowed to 8.0 percent year-on-year (y/y) in the three months to June, down from an average of 14.4 percent y/y over the whole of 2022. Wages growth also eased in the June quarter, growing 3.1 percent y/y, compared to 3.6 percent y/y in 2022. Jobs growth was the weakest performing sub-metric, rising 2.3 percent y/y in the June quarter, below the 3.4 percent y/y average in 2022. Payment times were impacted in June by the end the financial year, however have remained broadly stable, averaging 23.0 days during the first five months of 2023.

“Today's data highlights that the combination of persistent inflation and ongoing high interest rates are hitting household budgets and not leaving much room for extra spending in small businesses. But on a more positive note, small businesses are still selling more goods and services than they were a year ago, and owners are likely to welcome the news, at least in the short-term, that wage pressures have eased,” said Louise Southall, Xero Economist.

Sales growth slows as cost of living squeeze hits spending

Small business sales growth slowed to 8.0 percent y/y in the June quarter which was slower than the three month average to March (+11.9% y/y). However, this figure was still above the long-term 7.8 percent y/y average for this metric. Additionally, small businesses are still selling more goods and services than they were a year ago, as the rise in sales was larger than the rise in the CPI in the June quarter.

Across the industries, sales growth in the three months to June was led by healthcare (+14.8% y/y) and construction (+10.4% y/y) while the weakest industry was agriculture (-2.0% y/y). The retail trade sector also reported soft sales growth since September 2022, suggesting Australians have cut back on discretionary spending, likely due to rising cost of living and interest rate rises putting pressure on household budgets. While all Australian states reported slower average sales growth in the June quarter, Queensland was the strongest with 10.5 percent y/y, while Tasmania was the weakest (4.2 percent y/y).

Wage pressures easing

Wages growth equated to 3.1 percent y/y for the first six months of 2023, a significant step down from the average wage growth of 3.9 percent y/y small businesses experienced in the last six months of 2022. The smallest wage rises were in health care (+2.7% y/y), while hospitality and construction saw the largest wage rises in the June quarter, growing 4.4 percent y/y and 4.3 percent y/y respectively.

Tight labor market slowing jobs growth

During the first half of the year, Australian small businesses continued to find it hard to hire new staff, with jobs growth being the weakest of the Xero Small Business Index sub-metrics. Jobs growth averaged 2.3 percent y/y during the June quarter, slower than the 3.4 percent y/y average growth during the whole of 2022. At an industry level, real estate was the weakest for jobs, falling an average of 1.0 percent y/y over the three months to June, followed by hospitality (0% y/y) and retail trade (0.4% y/y). Western Australia had by far the strongest jobs performance during the June quarter, averaging 5.1 percent y/y, while Tasmanian jobs fell an average of 0.6 percent y/y.

Time for small businesses to be paid holds steady

Aside from the month of June, which was impacted by faster than usual payment times ahead of the end of the financial year, payment times were stable during the first half of the year. Small businesses waited on average 23.0 days to be paid in the first five months of 2023, and payments were made on average 6.8 days late in this period. While payment times haven’t shifted much throughout the year, they remain a pain point and can have a detrimental impact on small businesses who might already be experiencing cash flow stress.

“We know it’s been a difficult start to the year for many Australian small businesses, but it’s promising to see there are positive signs, such as easing wage pressures, in the latest data from Xero’s Small Business Insights,” said Will Buckley, Country Manager, Xero Australia.

“Small businesses have shown resilience in the face of interest rate rises and high inflation but while household budgets are tight at the moment, we encourage Australians to continue supporting small businesses in their communities in whatever way they can. Whether that’s shopping locally, spreading the word online or making an effort to check in with the small business owners in your area, we can all play a part in ensuring they can continue to thrive.”

You can find the latest Xero Small Business Index Australia Update here. To find out more about how the Index is constructed, see the methodology.

ENDS

Media Contact

Xero Australia | Jess Brophy | +61 431 268 549 | jess.brophy@xero.com

About Xero

Xero is a global small business platform with 3.7 million subscribers which includes a core accounting solution, payroll, workforce management, expenses and projects. Xero also has an extensive ecosystem of connected apps and connections to banks and other financial institutions helping small businesses access a range of solutions from within Xero’s open platform to help them run their business and manage their finances. For four consecutive years (2020-2023) Xero was included in the Bloomberg Gender-Equality Index. In 2021 and 2022, Xero was included in the Dow Jones Sustainability Index (DJSI), powered by the S&P Global Corporate Sustainability Assessment. Xero is a FIFA Women’s Football partner.