SME business confidence up for a fourth quarter – consistent with increases seen by larger firms. Confidence is finally gaining traction to support business activity, with conditions rising to their highest since mid-2011 – but remain soft. SME’s continue to outperform larger firms in number of industries, particularly in the services sectors, but smaller retailers are suffering relatively more. Forward indicators better, but still very subdued, implying soft near-term sales.

• SME business confidence saw its fourth consecutive rise in the December quarter, reaching its highest level since 2010. The increase was consistent with what we have seen from larger firms in the quarter, suggesting that lower interest rates and (to a lesser extent) AUD are having the desired impact on the economy (NAB Quarterly Business Survey). Consistent with this, property/construction and finance/business firms are the most confident, reflecting a pick up in leading indicators of construction activity. Confidence rose the most, and is now highest, in Western Australia despite anticipated headwinds from mining investment. Confidence improved across all tiers of SMEs, but mid-tier SME’s are the most confident by a significant margin.
• SME business conditions rose strongly in the December quarter, but the index is still pointing to relatively soft business activity. Conditions at high-tier firms were unchanged, while low and mid-tier firms recorded a significant improvement and are now outperforming their larger counterparts. Cash flows results at very small and mid-tier SMEs recovered from alarmingly low levels in Q3.
• SME conditions still vary widely between industries, with property and financial services, heath, business services and accommodation, cafes & restaurants all holding up relatively well – and out performing their larger counterparts. Transport, retail and (surprisingly) construction were the weakest industries for the quarter – retail was the only industry to significantly under perform against larger firms. Business conditions improved across all states, but remain very weak in SA and Qld and strongest in WA.
• Forward orders improved, but remain subdued, while employment conditions continue to be weak. This suggests little likelihood of any near-term strengthening in sales.
• Responses to a special question suggest that in the past twelve months, more than half of SMEs developed or improved their websites to improve competitiveness, while a similar proportion looked to develop new products. Price discounting also remains a popular strategy, possibly helping to limiting down stream price pressures.

For further analysis download the full report.

• Quarterly SME Survey – December 2013 (PDF, 369KB)