Overview

SME business conditions fell in Q2, unwinding the improvement seen in Q1. While there was a third consecutive improvement in confidence, both conditions and confidence remain well below their long-run average. The fall in conditions was reflected across all sub-components (trading, profitability and employment). Larger firms captured in the NAB Quarterly Business Survey (QBS) saw similar outcomes, with conditions also falling (but by a bit less than SMEs) and confidence improving (by a bit more). SME conditions and confidence remain weaker than the quarterly survey in level terms, though the gap for conditions has gradually been narrowing, but it has opened up recently for confidence. Again, similar to the QBS, the share of SME firms reporting labour as a significant output constraint again eased but remains high. Cost measures softened in the quarter but also remain elevated.

Survey Details

• SME business conditions declined 4pts to -5 index points. The largest falls were experienced by the smallest (down 4pts to -3 index points) and the largest SMEs (down 5pts to -6 index points).
• By industry, SME conditions deteriorated in most industries with business services, accommodation and health the exceptions. The largest falls were in finance (down 19pts to +1 index points), taking it to its lowest level since 2020), transport (down 13pts) and retail (down 10pts). Conditions are strongest in health, business and property services, and weakest in manufacturing and retail.
• SME business confidence was little changed, up 1pt to -8 index points. SME confidence is negative across all industries except property and business services, with the latter borderline (at 0 index points).
• Across the states, SME conditions fell in every state except SA. In level terms, NSW and Victoria have the weakest conditions and both indices are negative, in contrast to the other states who have positive readings. Changes in SME confidence by state were mixed. All states remain in negative territory, but NSW and Victoria are lagging.
• Conditions also weakened in Q2 in larger firms (as measured in the NAB Quarterly Business Survey), but the decline was more modest than for SMEs. In level terms, conditions and confidence remain relatively weaker in SME firms. That said, the gap in conditions has been gradually narrowing since H2 2022 (but the confidence gap has widened recently).
• Leading indicators were again mixed. Capacity utilisation fell to 80.1% (now a little below its historical average), and forward orders improved, while future capex intentions were little changed.
• Cost pressures eased across all categories (labour and purchase costs and overheads) but remain high by historical standards.
• Final prices ticked up slightly to 0.7% (back to where they were in Q4 2024). The sales margin index improved marginally but remains low.

For more information, please see the NAB Quarterly SME Business Survey (Q2)