February 11, 2016

NAB Quarterly SME Business Survey – December 2015

Business conditions eased slightly to +3, slightly below the long-run average. Business confidence picked up to +3 in the December quarter.

The NAB SME business survey shows that conditions for small businesses were stable though subdued in late 2015. Business conditions continue to vary across industries and states, with services sectors and the largest eastern states outperforming. Conditions also vary across firm size, with “low-tier” firms facing the most challenging conditions. Small business confidence bounced in the December quarter 2015, although this pre-dates the recent financial market turmoil.

Business conditions eased slightly to +3, slightly below the long-run average. Business confidence picked up to +3 in the December quarter.

The NAB SME Survey is the leading business survey on small businesses in Australia, and complements the comprehensive Quarterly NAB Business Survey. It offers a rich repertoire of insights into factors affecting smaller firms’ conditions by state, industry and size, as well as an assessment of their outlook for investment and output.

According to NAB Group Chief Economist Alan Oster, “While business conditions for SMEs have been more subdued than for the broader business community, conditions were reassuringly stable through 2015. Trading conditions have been particularly strong, while employment has been somewhat disappointing.”

In general, services sectors continued to outperform more traditional sectors in the quarter, except for retail. Mr Oster notes that “conditions are particularly positive for small businesses in the finance, property, hospitality and health sectors. In contrast, conditions have turned negative for those in wholesale and retail. This bears close watching and could suggest that smaller firms in the retail and wholesale sectors may not be as well positioned as larger businesses to absorb higher import costs associated with the lower currency.”

“In contrast, small businesses in the manufacturing sector appear to be benefiting from the lower currency, as evidenced by a trend uplift in business conditions, with smaller manufactures appearing to be outperforming their larger counterparts.”

The widening disparity in SME business conditions between the best-performing and worst-performing states suggests that the rebalancing of growth away from mining states to non-mining states is gaining traction. “On a state by state basis, NSW and Victoria remain the most resilient in terms of business conditions, while conditions in WA and SA remain negative”, said Mr Oster.

Business confidence picked up in the December quarter to +3, just above its long-run average of +2. According to Mr Oster, “SMEs experienced a lift in confidence in Q4, although the survey was conducted prior to the recent rout in global financial and commodity markets, which may act to erode confidence.”

Forward-looking measures such as capacity utilisation and forward orders eased modestly in Q4, although forward orders remained above the long-run average. Mr Oster said “Weaker but still positive forward orders still point to a tentative recovery in small business activity into 2016. Measures of capital expenditure however have not picked up further, which suggests non-mining investment may continue to disappoint.”

For further details, please see the attached document.

Click here to view a video of Alan Oster discussing the topic.