However, conditions continue to lag behind those of larger businesses
SME business conditions in Q2 remained steady but continued to lag behind those of larger businesses, according to the latest NAB SME Business Survey.
The smallest SMEs saw a slight improvement, although their conditions stayed negative, while medium and larger SMEs experienced a decline.
Business confidence among SMEs also stayed in negative territory despite a modest improvement. Forward orders softened, and cost pressures remained high with only minor improvement. Price growth edged down.
Labour availability continued to be a significant constraint for about 30% of firms, similar to larger businesses, indicating a tight labour market despite a slight decrease in the unemployment rate.
“Conditions for SMEs remained below average in Q2,” said NAB chief economist Alan Oster (pictured above). “There was some improvement in profitability, but a fall in the employment index and trading conditions.
“SMEs in accommodation, cafes and restaurants continue to report the softest conditions, alongside manufacturing SMEs, with conditions also negative in health, retail, and wholesale. This is now a broad spread of sectors reporting negative conditions, which suggests the slowdown in the economy is being widely felt by SMEs.”
SME business confidence rose by four points to -3 index points. However, forward orders dropped two points to -7 index points, and capital expenditure fell by one point to +4 index points. Capacity utilisation remained above average at 81.5%, up from 81.2%.
“SME confidence improved again this quarter but is still in negative territory,” Oster said. “The persistently low levels of confidence among both SMEs and larger firms in our surveys have reflected that firms have remained concerned about the outlook for the economy for some time.”
Cost pressures saw little change, with quarterly purchase cost growth at 1.3%, down from 1.5% in Q1, and labour cost growth at 1.2%, down from 1.3%. Final prices grew by 0.7%, down from 0.9%, while the sales margin index improved slightly, up three points to -12 index points.
“Cost pressures for SMEs showed little improvement in Q2,” Oster said. “We did see some easing in price growth however, which might suggest the pressure on margins is building as firms face into a softer demand environment.”
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