Both small business confidence and conditions continued to fall during the December quarter, according to the latest results from a regular NAB survey.
The result is disappointing given recent improvements in the local economy, along with cuts to the official interest rate, although NAB says there is some hope as more businesses are investing money to sustain growth.
However, there is some good news. The survey found more than half of the respondents invested in new products to improve competitiveness, and more than two-thirds developed, or improved, their online capabilities.
“We’ve seen a lot of focus in terms of a few things, and mostly improving their websites,” NAB executive general manager of business Daryl Johnson told SmartCompany.
“They’re increasing the use of online markets and the development of new products. I think this is all part of small business taking tangible action in relation to challenging times.”
The results, on the face of it, are disappointing. SME business confidence fell two points, while business conditions fell by the same amount. The results were the same across all size categories of SMEs, although the higher-earning companies recorded a flat, but still negative, result.
Higher earning SMEs are categorised as turning over between $5-10 million per year.
There were declines across all metrics, including profitability and employment. However, trading conditions remained flat, and cash flow actually increased by one point, but remained in negative territory.
Forward indicators of demand were also poor, including forward orders and stock levels. Capacity utilisation lifted during the quarter, but remained “close to record lows”.
Much of the low confidence has been sourced to the international financial turmoil, with SMEs still worried about the consequences of a European financial meltdown, or the threat of a double-dip recession in the United States.
The ongoing negativity has been contrasted against the relatively positive performance of the local economy – especially with interest rate cuts and a higher-performing sharemarket.
Johnson says the results suggest “a lot of psychology” is at play.
“I think SME confidence is affected to the extent they’re dealing with consumers, and their confidence is partially a factor of people coming through their doors or not.”
The negative results are spread across industries, with confidence weakening in finance, accommodation, cafes and restaurants and wholesale. Health services and manufacturing were the only two industries to record some improvement.
Conditions in property services, manufacturing, finance and health also deteriorated in the December quarter. Some improvements were found in wholesale and retail, although NAB said these two industries still recorded “very poor” results.
But Johnson says good economic news should eventually help SMEs, especially as they’ve spent so much time preparing.
“Some positive economic signs should help people feel a bit wealthier,” he says.