Modest bounceback for small businesses on the back of easing of restrictions

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Road To Recovery road sign with sun background

The latest Xero Small Business Index indicates an increase of five points in October to 94, a change largely attributed to the easing of lockdown restrictions in NSW, ACT, and Victoria during the month.

While the Index, which keeps track of the health of Australia’s small-business economy, only showed a modest increase, keeping the overall small business performance below average for the third consecutive month, it provides an early indication of what can be expected after a full month of eased restrictions.

Nationally, the Index showed a sales growth of 4.4 per cent year-on-year (y/y), after adjusting for base effects, which was a slowdown from +8.2 per cent y/y in September. While every state experienced slower sales growth in October, Victoria continued to record the weakest results as sales rose just 0.6 per cent y/y, despite lockdown restrictions easing from 21 October. Sales growth in NSW was 4.8 per cent, while Tasmania weakened considerably delivering +1.9 per cent y/y sales growth, down from+10.4 per cent y/y in September.

“The latest Xero Small Business Index data highlights how it’s likely it will take a while for small businesses impacted by lockdowns to get back on their feet,” Joseph Lyons, Managing Director of Xero in Australia and Asia, said. “As we lead into the festive season and summer holidays, it’s really important that Australians continue their support of small businesses, shopping locally wherever they can. With density limits easing and borders reopening, it’ll also be great to see holidaymakers exploring their own backyard and supporting local tourism operators while doing so.”

At a national level, small business jobs rose a modest 0.1 per cent y/y, adjusting for base effects in October. This slight rebound came of the back of a decline of 1.0 per cent y/y in September.

While the jobs situation improved in the lockdown states as they gradually reopened throughout the month, growth still remained negative, with the ACT experiencing -2.8 per cent y/y, -2.3 per cent y/y in Victoria and -1.2 per cent y/y in NSW.

Tasmania also recorded negative jobs growth for the first time this year, down 0.2 per cent y/y as ongoing border closures with the mainland start to bite into the tourism sector. Meanwhile, Western Australia (+5.1% y/y) and Queensland (+3.2% y/y) continue to record solid jobs growth.

“We were still witnessing a two-speed economy in October, despite restrictions lifing in NSW, the ACT and Victoria,” Lyons said. “On the jobs front, Western Australia and Queensland continue to be our strongest performers. We will be keeping an eye on November’s results to see how quickly others can catch up.”

While still experiencing negative impacts from COVID-19, arts & recreation (-8.3 per cent y/y) and hospitality (-7.7 per cent y/y) showed a slight improvement in jobs growth in October. Healthcare (+4.8 per cent y/y) and professional services (+3.5 per cent y/y) continue to be the most job resilient sectors.

“It will take time for those heavily impacted small businesses to rebuild jobs, as they still deal with ongoing restrictions such as patron limits,” Louise Southall, Xero Economist, said. “The summer holiday period is a great opportunity for people to show their support for local hospitality and arts and recreation small businesses.”