iscover
A slowdown in sales and wages growth saw softer performance in the December quarter, according to the latest Xero Small Business Index.
The Xero Small Business Index averaged 115 points in the December quarter, falling 10 points from the September quarter.
The Xero Small Business Insights data revealed that sales growth averaged 5.1 per cent year on year for the December quarter, a reduction from 6.8 per cent in the September quarter.
Wages growth increased for the December quarter at an average of 3 per cent, compared to 2.8 per cent for the September quarter.
The data showed a significant shift in December when the index fell 37 points to 89 points, its lowest level since September 2020. It was also the first time in a year the index has dropped below the 100 level.
This is the largest single-month decline since April 2020, when the economy was essentially closed down by the pandemic, according to Xero.
Sales only rose 0.9 per cent in December, the smallest rise in sales since January 2021.
Across industries, retail (+1.2 per cent year on year), wholesale trade (-0.1 per cent year on year) and agriculture (-4 per cent year on year) were the softest during the December quarter. Meanwhile, healthcare (+13 per cent year on year) and education and training (+11.1 per cent year on year) recorded strong sales growth.
All states and territories recorded a sharp decline in sales growth in December, with Queensland (+2.2 per cent year on year) showing the smallest decline in growth (down 1.9 percentage points), and South Australia (-0.1 per cent year on year) showing the largest decline (down 7.4 percentage points).
Xero economist Louise Southall said multiple interest rate rises and higher-than-usual inflation are impacting household budgets, and we can see a shift in the December data, particularly in the retail sector.
“It’s important to acknowledge that the soft December result happened when retailers and hospitality businesses, in particular, expect to be busy with heightened consumer activity,” said Southall.
“Looking ahead, conditions are likely to remain challenging as interest rates stay high and inflation is still above the central bank’s target.”
Despite the decline in sales, there was still a modest pick-up in jobs growth in the final few months of the year.
Jobs growth was 3.5 per cent for the December quarter and was above the pre-pandemic average of 3 per cent. It was also up from the September quarter, which was 2.7 per cent year on year.
Payment times showed little change in Australia over 2023, excluding the abnormal June result, with the three months to December showing the same result as the September quarter.
On average, payments were made 6.3 days late in both the December and September quarters and only slightly longer (6.6 days) in the first half of 2023.
Xero Australia interim country manager Theo Konstantas said that in the face of headwinds, small businesses need to get creative when it comes to key issues such as finding new customers, staying productive, and addressing staff shortages.
“This might involve adopting new technologies to streamline processes and unlock opportunities. It’s important that small businesses leverage their support networks, particularly their advisors, during challenging periods to determine some of the actionable steps they can take,” said Konstantas.
This article was originally featured in HR Leader’s sister brand, Accountants Daily.
Jack Campbell
Jack is the editor at HR Leader.
