The latest Xero Small Business Index report reveals that the index rose to seven points in August to 119 points, which has been largely be attributed to strong jobs growth (recorded at +6.6 per cent year-on-year), accompanied by an increase in wages (+4.1 per cent y/y), as well as sales (+16.3 per cent y/y).
“The August result demonstrates that small businesses are successfully navigating a period of increasing inflation and cost of living pressures,” Joseph Lyons, Managing Director of APAC at Xero, said of the findings. “It’s also encouraging to see post-pandemic recovery for the hospitality and arts and recreation industries, two industries that were the hardest hit over the last couple of years.”
The report found that jobs rose 6.6 per cent y/y, which is more than double the average growth recorded in the previous Xero Small Business Index series, and the strongest result since August 2021.
“The Index has revealed four consecutive months of positive jobs growth, which is promising to see in such a tight labour market,” Lyons said. “It is a strong indication of the strength, resilience and health of small businesses across the nation.”
All states and territories recorded positive jobs growth, led by New South Wales (+13.6 per cent y/y). Agriculture was the only industry to report a negative jobs result (-0.8 per cent y/y), while all other industries reporting positive growth, with arts and recreation (+18.9 per cent y/y) and hospitality (+14.4 per cent y/y) leading the pack.
Wages rose 4.1 per cent y/y in August, the second highest result since the series began in January 2017. Across the industries, wages growth was led by construction (+4.7 per cent y/y) and manufacturing (+4.5 per cent y/y), with health care (+3.1 per cent y/y) recording the slowest growth.
“Wage increases can be simultaneously positive and negative for small businesses,” Louise Southall, Economist at Xero, said. “Whilst faster wage increases add to running costs, higher wages also reflect the underlying health of the small-business sector, as well as its capacity to compete for staff against larger organisations.
“Paying higher wages also supports employees as they navigate their own cost of living pressures and in turn, allows them to spend more with small businesses.”
Sales rose 16.3 per cent in August – the largest rise since February 2022. As with the jobs data, Australia’s sales results were led by arts and recreation (+47.1 per cent y/y) and hospitality (+41.3 per cent y/y).
“The rise in sales isn’t solely due to higher prices, it also reflects more goods and services being sold,” Southall explained. “Based on the most recent Consumer Price Index (June 2022) of 6.1 per cent y/y we can see nominal sales are growing faster than inflation.”
Despite these positive developments, payment times have worsened for small businesses, increasing 0.5 days during the month of August to 23.6 days. This is the highest reading since August 2021, and above the 22.8 day average for the first six months of 2022.
