Overview

SME business conditions held steady in Q2 but remained below their long-run average, continuing to track below the level of conditions reported by larger businesses. The quarter saw a pick-up in conditions for the smallest SMEs (albeit they remain negative) while conditions for medium and larger SMEs slipped. SME business confidence also remains in negative territory though it improved somewhat in the quarter – although SME forward orders softened. Cost pressures remained elevated with only marginal improvement in the quarter, while price growth edged down. Labour availability remains a significant constraint for around 30% of firms, similar to the rates reported by larger businesses signalling that the labour market remains fairly tight despite some easing in the unemployment rate.

Comments from NAB Chief Economist Alan Oster

SME business conditions were steady at +2 index points, below the long-run average of +6. Conditions for the smallest SMEs improved 5pts albeit they remained negative, while conditions for mid-tier firms turned negative in the quarter and larger firms saw also conditions ease slightly.

“Conditions for SMEs remained below average in Q2,” said NAB Chief Economist Alan Oster. “There was some improvement in profitability but a fall in the employment index as well as trading conditions.”

“SMEs in accommodation, cafes & restaurants continue to report the softest conditions, alongside manufacturing SMEs, with conditions also negative in health, retail, and wholesale,” said Mr Oster. “This is now a broad spread of sectors reporting negative conditions which suggests the slowdown in the economy is being widely felt by SMEs.”

SME business confidence rose 4pts to -3 index points. Forward orders fell 2pts to -7 index points and capex fell 1pt to +4 index points, but capacity utilisation remained above average at 81.5% (from 81.2%).

“SME confidence improved again this quarter but is still in negative territory,” said Mr Oster. “The persistently low levels of confidence among both SMEs and larger firms in our surveys have reflected that firms have remained concerned about the outlook for the economy for some time.”

Cost pressures were little changed, with quarterly purchase cost growth of 1.3% (down from 1.5% in Q1) and labour costs growth of 1.2% (down from 1.3%). Final prices grew at 0.7% overall (down from 0.9%) while the sales margin index improved slightly, up 3pts to -12 index points.

“Cost pressures for SMEs showed little improvement in Q2,” said Mr Oster. “We did see some easing in price growth however, which might suggest the pressure on margins is building as firms face into a softer demand environment.”

For more information, please see the NAB Quarterly SME Business Survey (Q2 2024)