Xero’s latest Small Business Index report reveals that the Index increased by three points in February 2022 to 102 points, a result largely driven by sales, which rose 15.2 per cent year-on-year (y/y).
This was partially offset by continued weakness in jobs growth, which fell 1.1 per cent y/y in February after a 0.6 per cent y/y rise in January.
Given these figures, Xero notes that small businesses are making a gradual recovery, after a challenging summer brought about by a spike of Omicron variant cases across the country, and a slow return to above the long-term average. And despite 32 per cent of small businesses still seeing COVID-19 as a threat to their business this year according to a survey, they were optimistic that conditions will be better than in previous years.
In addition, 53 per cent of small businesses said they were performing about the same as they were before the pandemic.
“February’s Xero Small Business Index results are cause for cautious optimism that the sector is on track for a gradual recovery,” Joseph Lyons, Managing Director Australia and Asia, Xero, said. “That said, small businesses are still navigating the ongoing impacts of the pandemic and continued labour shortages, while also facing a fresh set of challenges in 2022.
” Those in southeast Queensland and northern New South Wales are dealing with the aftermath of the floods, while more broadly we’re seeing the effects of inflation and rising costs,” Lyons added. “Time and again, small businesses have proved their resilience, but they’ll need to remain top of mind for political parties this budget week and as we edge closer to an election. The health of the small business sector is key to our sustained economic growth.”
The Index noted that the strongest sector for sales was administrative services (+24.6 per cent y/y) although this was partly due to a weak result (-1.6 per cent y/y) in February 2021. Hospitality sales rose a solid 6.7 per cent y/y as food and accommodation businesses returned to more ‘normal’ trading conditions in the larger east-coast states during the month.
Meanwhile, wages rose 3.3 per cent y/y in February, and are little changed from the 3.4 per cent growth recorded in January. Hospitality recorded a 4.0 per cent y/y rise in wages as this sector continues to struggle to attract staf. The slowest wages growth is in health and arts & recreation, both at 2.8 per cent y/y.
“Wage growth is slowly picking up, underpinned by strong demand from employers. This is likely to continue in the months ahead, as recent strong sales growth continues to support the need for more staff in small businesses,” Louise Southall, Xero Economist, commented.