NAB SME Business Survey: Quarter 1 2022

Omicron weighed on SME conditions and confidence in Q1.

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Overview

Small and medium enterprise (SME) business confidence softened in Q1, falling 6pts to +9 index points after a strong rebound in Q4. The softening was seen across SMEs of all sizes, though all subgroups remain well into positive territory.

According to Alan Oster, NAB Group Chief Economist: “The impact of the Omicron outbreak on SMEs was evident in the Q1 survey, just as it was for larger firms in our Quarterly survey, with confidence softening from the high levels reached at the end of 2021.”

SME business conditions also eased, down 5pts to +6 index points. The largest fall was among high-tier firms, which had reported very strong conditions in Q4, but SMEs of all sizes saw conditions soften and low-tier firms continued to report the weakest conditions at +5 index points.

“Conditions also eased for SMEs in Q1, with trading conditions and profitability down,” said Mr Oster. “SMEs reported weaker conditions in every state, with the largest falls coming in South Australia and Western Australia.”

By industry, conditions deteriorated the most in property and construction, while the transport and finance sectors edged up. Still, conditions remained fairly strong across most sectors but remain heavily negative in accommodation & food (-17 index points) and also slipped to around zero in health and manufacturing.

“Unfortunately, conditions remained very weak for SMEs in the hospitality sector, which has continued to face disruptions from the pandemic,” said Mr Oster. “SMEs in the property and construction sectors also saw conditions slip in the quarter, which could reflect a range of factors impacting the property market, including Omicron as well as slowing house price growth.”

Leading indicators were mixed in Q4. Capacity utilisation edged up 0.3pts to 82.2%, but forward orders fell 7pts to +5 index points and capex also fell 2pts to +6 index points.

Costs remained elevated. Purchase cost growth (2%), labour cost growth (1%) and overheads (0.4%) were all little changed from Q4, with purchase costs in particular running at historically very high levels. Prices also rose (up 1.4%, similar to Q4) but overall that left margins under pressure with the sales margin index little changed at -10 index points.

According to Mr Oster, “As we have seen in all our business surveys, SMEs are facing very elevated cost pressures and this is translating to price increases, although margins remain under pressure. Labour and materials availability continue to be a constraint for a large share of firms.”

“Still, our expectation is for the economy to continue to strengthen over coming months which should help SMEs to recover from the disruptions earlier in the year,” said Mr Oster.

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 Survey report.

For more information, please see the NAB Quarterly SME Business Survey Q1 2022