Xero’s latest edition of its Small Business Index has revealed that the Index registered 93 points in January 2023, down 26 points since November.
The report noted that the decrease driven by a slowdown across key areas. One area is sales, which despite growing 7.2 per cent year-on-year, was down from 11.1 per cent y/y in November. Jobs growth slowed to just 1.6 per cent y/y, down from 2.8 per cent y/y in December. The time to be paid metric rose 0.6 days to 23.8 days, which is the longest time since September 2020. Wages rose just 2.9 per cent y/y in January, down from a peak of 4.7 per cent y/y in September 2022 and below the long-run average for the Index (+3.0 per cent y/y).
Will Buckley, Country Manager, Xero Australia, said, “This latest data from our Index shows that Australian small businesses are beginning to feel the impact of cost of living pressures on their customers. We are seeing a slowdown in sales that will be putting pressure on small businesses who are recovering from a demanding few years. This then flows through to their capacity to increase wages and attract staff.”
Meanwhile, wages rose 2.9 per cent y/y in January, although it was smallest rise since December 2021, and the fourth consecutive month of slowing growth.
“Given Australia’s current low unemployment rate, there has understandably been a lot of concern around how this will impact wages growth and, in turn, inflation. However, our data suggests that the wage increases being paid by small businesses are not as large as they were as recently as September last year,” said Louise Southall, Xero Economist. “While this may provide some short-term relief for small-business owners who struggled with balancing above average wage increases and rising costs during 2022, it may result in consumers having less disposable income to feed back into small businesses in the medium term.”
Sales rose 7.2 per cent y/y, the same result as in December but a smaller increase than the 11.1 percent rise in November. However while nominal sales still rose, the volume of goods being sold has likely declined.
“Using the most recent CPI result (+7.8 per cent y/y) as a proxy for prices, sales volumes fell 0.6 percent y/y in January. This shows that small businesses are likely selling fewer goods and services than a year ago. This was also the case in December – which was the first month in 2022 that Australia recorded a fall in real sales,” said Southall.
Jobs rose 1.6 per cent y/y in January, the smallest rise since May 2022 and around half of the long-term average for this series. Looking at the sectors, education recorded the largest fall in jobs, with a decrease of 4 per cent y/y. Construction also now has fewer jobs than a year ago (-0.3 per cent y.y) – the first decline for the industry since May 2022.
The length of time small businesses waited to be paid rose 0.6 days to 23.8 days in January, above the average of 23.1 days in both 2022 and 2021. Late payments also rose 1.2 days to 7.7 days – the highest since July 2020.
“We will be closely monitoring the time to be paid metric over the coming months for signs of emerging cash flow stress amongst small businesses,” said Buckley. “At a time when small businesses are facing numerous economic headwinds, it is crucial for bigger businesses to be paying their invoices on time. If any small business is starting to feel a cash flow squeeze, I encourage them to speak to their advisor and establish a plan for the coming months.
