No Christmas miracle for SMEs as trading conditions remain ‘soft’
Friday, October 25, 2019/
Confidence among small and medium business owners heading into the all-important Christmas trading period has worsened, while business conditions over the last quarter improved, National Australia Bank (NAB) economists say.
Releasing their closely watched quarterly SME Business Survey yesterday, NAB economists said trading conditions are likely to “remain soft” in the “near-term”.
Business conditions shot up eight points on NAB’s index for the September quarter, while confidence fell three points, to a below-average +1.
The bank’s chief economist, Alan Oster, said the improvement in conditions was a “relief”, ending continuous falls since early last year.
But he warned the bump “essentially just unwinds” a large fall in conditions in the June quarter.
“Conditions are still below where they were a year ago and remain below their historical average,” Oster said in a statement circulated Thursday.
“The continuing weakness in leading indicators suggests that conditions are likely to remain soft — at least in the near-term.
“This is particularly so given that the lift to business confidence in Q2, likely due to post-election optimism and rate cut hopes, was not sustained,” Oster said.
The index measuring changes in SME profitability remained negative, but rebounded in the September quarter while sales margins are still under pressure, NAB economists also said.
The latest edition of the survey is based on a sample of 800 firms across the non-farm business sector, with fieldwork conducted between August 26 to September 12, a period in which it emerged Australia’s economic growth had slowed to a decade low.
The index itself measures changes in sentiment and several other “leading indicators” for business performance, including input costs, final price growth, cashflow and output constraints.
Customers to wait?
Small business owners SmartCompany has spoken to in recent months say they’re experiencing mixed trading conditions lately, but are hoping for the best and preparing for the worst as headlines continue to spin about a possible recession.
Yellow Octopus, an online gift retailer, expects consumers to be purchasing later, similar to the trend observed last year, where many retailers experienced a lull in the wake of Black Friday and Cyber Monday spending, before consumers came back out in force closer to December 25.
“Broader macro-economic factors such as a weakening Australian economy could be denting consumer confidence with people reigning in discretionary spending, however, it’s probably not our biggest concern,” a Yellow Octopus spokesperson said.
Property looking good?
It will be an important Christmas for the beleaguered retail sector, which has been struggling for several years with weak consumer fundamentals and technological disruption on the demand and supply sides.
Oster said conditions for SME retailers picked up in the September quarter but trading remained “very weak”, while the property and finance sectors experienced a turnaround.
The property sector is likely benefiting from interest rate cuts and the recent turnaround in house prices in the Sydney and Melbourne markets,” Oster said.
As part of their report, NAB economists split out their quarterly survey results into assessments about ‘low-tier’ firms, with $2-$3 million in revenue, ‘mid-tier’ firms, with $3-5 million, and ‘high-tier’ firms, which book $5-$10 million in annual revenue.
This measure indicates firms turning over more money feel more confident heading into Christmas, while smaller businesses exhibited the least confidence, measuring -3 on NAB’s index.
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