April 24, 2024

NAB SME Business Survey: Quarter 1 2024

SME conditions fall, diverging from larger firms


SME business conditions fell further below average in Q1 as slowing demand and declining profitability weighed on firms. Conditions for SMEs have now clearly diverged from the resilience reported by larger firms in NAB’s Quarterly Business Survey, with conditions for the smallest firms remaining negative and mid-tier SMEs also seeing a considerable decline. Business confidence also remained negative among SMEs, though there was a small improvement compared to Q4. Similarly, SME forward orders picked up but remained negative, while capacity utilisation edged down to 81%. Cost growth measures eased slightly, though price growth was broadly unchanged from Q4 at 0.9% in quarterly terms and labour availability remained a significant constraint for a third of all SMEs.

Comments from NAB Chief Economist Alan Oster

SME business conditions fell 3pts to +2 index points, below the long-run average of +6. The shift was driven by a decline in conditions for mid-tier firms (those with $3-5m annual turnover), though conditions remain weakest for the smallest SMEs. Both trading conditions and profitability slipped several points in the quarter.

“Conditions for SMEs have fallen materially below average,” said NAB Chief Economist Alan Oster. “This is quite different to what we have seen among larger firms in our other surveys, and suggests SMEs are feeling the slowing in the economy more directly.”

“SMEs in manufacturing, wholesale and retail continue to report negative business conditions in trend terms,” said Mr Oster. “That suggests the goods part of the economy where discretionary and bulky spending by consumers really matters is where the challenges are most acute.”

SME business confidence rose 2pts to -6 index points. Forward orders rose 3pts to -4 index points and capex rose 1pt to +5 index points. Capacity utilisation eased slightly, to 81.0% (from 81.4%).

“SME confidence continues to be very negative, notwithstanding there was a bit of an improvement in Q1,” said Mr Oster. “This has been a consistent story across SMEs and larger firms with the outlook for the economy remaining clouded and many firms concerned about the future.”

Cost pressures edged down, with quarterly purchase cost growth of 1.4% (down from 1.6% in Q4) and labour costs growth of 1.1% (down from 1.4%). Final prices grew at 0.9% overall (unchanged) and the sales margin index continued to edge down, falling 1pt to -12 index points.

“Cost pressures reported by SMEs were down a little in Q1,” said Mr Oster. “That said, price growth was fairly steady. Overall firms are still under pressure on costs and with conditions continuing to ease for SMEs the scope to pass through these costs to consumers is clearly increasingly constrained.”

For more information, please see the NAB Quarterly SME Business Survey (Q1 2024)