Below trend growth to continue
Confidence pulls back from record high, but conditions lift.
Small and medium businesses reported a further improvement in business conditions in Q1 – driven by a pick-up in trading conditions (up 4pts) – though the profitability (up 1pt) and employment (up 1pt) sub-components also edged higher. Overall, the employment index continues to lag the recovery in the other components suggesting that the recovery in activity is yet to fully flow through to employment decisions. Confidence pulled back but remains elevated, after reaching a record high in the previous quarter.
According to Alan Oster, NAB Group Chief Economist: “The survey shows that like larger businesses, the SME sector saw a continued recovery in Q1.” Further, Mr Oster said “SME business confidence pulled back slightly but remains high.”
The improvement in conditions was driven by gains in SA and QLD, which alongside WA now report conditions above 20 index points. Vic and NSW continue to lag the other states. Likewise, after softening in both states, confidence remains weakest in Vic and NSW – though is well into positive territory.
“Conditions and confidence are well into positive territory across all states but there is a gap emerging between NSW and Vic who are lagging the others” said Mr Oster. “The dispersion of outcomes across states is slightly more evident than reported by larger businesses in our Quarterly Business Survey but for now everywhere appears to be improving.”
By industry, Accommodation, cafes & restaurants (up 13pts), Property services (up 8pts) and Construction (up 7pts) led the gains in conditions. Indeed, most industries saw improving conditions in Q1, except for Retail (down 13pts), Health (down 9pts) and Transport (down 5pts).
According to Mr Oster “The sectors which were most impacted by the pandemic continued to rebound in the quarter.” Further, Mr Oster said “Across industries, Property, Finance and Health are now strongest – though all sectors are back in positive territory.”
Leading indicators improved further in the quarter. Forward orders rose further and is now well above average, while capacity utilisation and reported capex also rose further.
According to Mr Oster: “The ongoing strengthening in leading indicators alongside still high confidence, suggests that for now the gains in business conditions are likely to be sustained”.
The NAB SME Survey is the leading survey of small and medium businesses in Australia and complements the comprehensive Quarterly NAB Business Survey (QBS) which covers larger businesses. The SME survey 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.
For more information, please see the NAB Quarterly SME Business Survey (Q1 2021)
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