NAB SME Business Survey: Quarter 3 2021

SME conditions fall under lockdowns.

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Overview

Small and medium enterprise business conditions fell sharply in Q3 under the weight of lockdowns, after reaching record highs in Q2. All three sub-components fell, with trading conditions holding up best at +15 index points. Employment was down to just +3 index points, from +12 index points in Q2. SME business confidence fell to zero, with confidence down across SMEs of all sizes.

According to Alan Oster, NAB Group Chief Economist: “As we have seen in our monthly and quarterly surveys of larger businesses, the lockdown period has taken a large toll on SMEs. Still, conditions have shown some resilience, reflecting the strength of the economy before the lockdowns as well as adaptation by businesses and support from policy.”

SMEs in NSW and Victoria experienced the largest declines with both conditions and confidence turning negative in these states. However, conditions remained in positive territory in the other mainland states where lockdowns were less severe or sustained.

“Unsurprisingly, SMEs in NSW and Victoria experienced the largest fall in conditions,” said Mr Oster. “While conditions in both states did not fall as low as during the lockdowns of 2020, they were still into negative territory which shows how deep the impact has been.”

The fall in conditions was felt broadly across SMEs of all sizes and across industries, led by accommodation & food businesses which saw conditions fall 53pts to -26 index points. Conditions in retail also fell sharply, down 27pts, but remained just positive at +1 index point. Confidence also fell in all industries.

According to Mr Oster: “The impact of lockdowns tends to fall hardest on the services industries in food and retail and that has been the case again, with very large falls in confidence and conditions among SMEs in those sectors.”

Leading indicators deteriorated in Q3 with capacity utilisation down to 77.9 percent, and forward orders down 18pts to -2 index points. The sales margin index, which had steadily risen since mid-2020 to reach positive territory in Q2 2021 for the first time since 2007, fell back to -11 index points.

The survey was conducted from 17 August to 9 September, in advance of the announcement of reopening roadmaps in NSW and Victoria.

According to Mr Oster, “Since this survey was conducted, vaccination rates have risen dramatically and both NSW and Victoria are now beginning the process of reopening. That should see conditions improve considerably for SMEs over the coming months.”

“While these survey results confirm the large hit to activity that took place in Q3, we are optimistic for a strong rebound in activity in Q4 and into 2022 as reopening progresses,” 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 Business Survey Q3 2021