Omicron hits small-business performance hard

business confidence declining

The latest Xero Small Business Index has recorded a sharp decline, down to 86 points, after having achieved record numbers in November. The decline was attributed to the surge of the COVID-19 Omicron cases across the country after two months of strong sales growth in the midst of the then-reduced lockdown restrictions and the holiday period.

“Looking at January’s decline after the highs of Christmas trading in November and December, there’s no doubt this Index reflects the heightened volatility many small-business owners have experienced these past few months,” Joseph Lyons, Managing Director Australia and Asia, Xero, said.

“Xero’s data tells us that small businesses can bounce back from tough times, and with COVID-19
restrictions easing, case numbers falling and national and international travel returning, there’s cause to be optimistic.”

The report noted that following the holiday period, sales growth slowed to 5.7 per cent y/y in January, particularly in hospitality (-7.5 per cent y/y), retail (0.7 per cent y/y), and arts and recreation (+1.3 per cent y/y). However, some industries were able to buck this trend such as financial services (+16 per cent y/y) admin services (+15.8 per cent y/y) and real estate (+11.7 per cent y/y) having recorded the strongest sales growth.

January also saw a weaker result in job growth, with jobs actually declining 1.5 per cent y/y compared to a rise of 1 per cent y/y in December. Education jobs saw a sharp decline of 13.9 per cent y/y, the largest drop in jobs for the sector since May 2020.

“The fall in jobs for the education sector could reflect the still comparatively low numbers of international students in Australia as the border reopening schedule was delayed by Omicron,” Louise Southall, Xero Economist, commented. “However, as Australia’s borders reopen, we’re likely to see more of these students return to Australia which should support future jobs growth later this year.”

The arts and recreation (-4.9 per cent y/y) and hospitality (-4.7 per cent y/y) sectors also recorded a fall in jobs. Conversely, sectors that enable working from home saw an increase, with administration (+4.8 per cent y/y) and professional services (+2.8 per cent y/y) able to better manage the disrupted period.

On a more positive note, wages grew by 3.4 per cent y/y, up from 2.5 per cent y/y in December with hospitality (+4.9 per cent y/y) and retail (+4 per cent y/y) sectors seeing significant growth.

“The rise in hospitality wages is a direct reflection of the shortage of overseas staff that this sector normally heavily relies on,” Southall said. “With borders gradually opening, we’re expecting to see these figures stabilise over the year as small businesses have access to more workers.”