Below trend growth to continue
Very strong SME business conditions in Q2.
Small and medium enterprise (SME) business conditions improved significantly in Q2 to a record high for the survey. The improvement in conditions was driven by trading conditions and profitability, but employment also increased, with all three components at record highs. While confidence eased slightly (as it did in Q1, from its record high in 2020 Q4), it remains elevated.
According to Alan Oster, NAB Group Chief Economist: “The survey shows that the ongoing recovery in the economy flowed through to SMEs and not just large business.” Further, Mr Oster said “The high level of SME business conditions is testament to the speed of the recovery that has occurred in Australia.”
The largest gain in conditions – of the mainland states – was in NSW. However, South Australia had the strongest conditions, with NSW, Queensland and WA only a little behind. Victorian SMEs had the weakest conditions but even they were well above average. Despite experiencing the largest fall in Q2, SME business confidence remains highest in WA. Confidence also fell in Victoria which now has the lowest level of any mainland state.
“Conditions and confidence were high, by historical standards, across all states but Victoria lagged the other states in Q2. The outcome for Victoria might have been affected by the lockdown that began in late May, about midway through the survey period” said Mr Oster.
Similarly, there was a broad-based improvement in business conditions by industry. All industries experienced gains of 10 or more index points in business conditions except Transport (up 2). Conditions were strongest in Property, Finance and Business and lowest in Construction, though it too remains elevated.
According to Mr Oster “While there is some variation in conditions by industry, conditions in all sectors were above average in Q2.” Further, Mr Oster said “Conditions were strongest in property services, both in absolute terms and relative to its historical average, consistent with the strength in the housing markets being shown by other indicators. Also worth noting is that, relative to their historical average, conditions were also particularly strong in retail and wholesale, consistent with the switch to goods consumption and towards non-store (i.e. online) sales seen in response to the pandemic.”
Leading indicators generally improved in Q2 and were mostly at a high level. Forward orders rose by 4pts to +16 index points, a survey high. Capacity utilisation, as well 3- and 12-month expectations for capex and employment. also made further gains and are at, or close to, survey highs.
According to Mr Oster: “The ongoing strengthening in leading indicators provides a positive note for the future as it suggests continued business investment and job gains. However, at least in the near term, conditions will be disrupted by recent and current lockdowns, particularly in NSW and Victoria.”
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 (Q2 2021)
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