Overview

SME business confidence fell more deeply into negative territory in Q3, while conditions also turned negative in the quarter. Conditions were negative for the smallest as well as middle-tier SMEs in the survey, while larger SMEs saw conditions drop to zero index points. The softening mirrors that seen among larger firms in the NAB Quarterly Business Survey. Cost pressures remained elevated, with no improvement in the pace of materials or labour cost growth reported by SMEs in the quarter, and the pace of price growth picked up marginally to 0.8% q/q. Labour availability remains a significant constraint for around 30% of firms, similar to the rates reported by larger businesses, while the share of firms reporting sales demand as a significant constraint rose to around a quarter (similar to the results seen in the years prior to COVID), reflecting ongoing subdued consumer demand.

Comments from NAB Head of Australian Economics Gareth Spence

SME business conditions fell 3pts to -2 index points. Conditions for the smallest SMEs remained negative and mid-tier SMEs declined to -7 index points. Larger SMEs also saw conditions ease down to 0 index points.

“Conditions for SMEs softened further in Q3,” said NAB Head of Australian Economics Gareth Spence. “Both the employment and profitability indexes were negative in the quarter, and the trading conditions index has also continued to trend downwards for SMEs.”

“SME conditions remain the weakest in accommodation & food, manufacturing, wholesale and retail,” said Mr Spence. “We know household incomes have been under pressure for some time and while there are signs the squeeze on incomes is easing, for now it is continuing to impact SMEs in discretionary consumer-facing industries as well as upstream industries such as wholesale and manufacturing.”

SME business confidence declined 8pts to -12 index points. Forward orders were steady at -8 index points, capex improved 3pts to +8 index points, while capacity utilisation dropped to 80.7%, closer to the long run average of 80.2%.

“SME confidence dropped in Q3 after improving in the prior quarter,” said Mr Spence. “Regardless, SME confidence has been mired in negative territory for an extended period reflecting firms’ concerns about the outlook for the economy through a difficult period of high inflation and restrictive monetary policy.”

Cost pressures were little changed, with quarterly purchase cost growth of 1.3% (unchanged from Q2) and labour costs growth of 1.3% (up from 1.2%). Final prices grew at 0.8% overall (up from 0.7%) while the sales margin index was broadly steady at -15 index points.

“Cost pressures have persisted for SMEs,” said Mr Spence. “Prices are now growing materially below the pace of input costs for SMEs suggesting pressure on margins is increasing. For now, however, price growth reported by SMEs is a little stronger than that reported by larger firms in the Quarterly Business Survey.”

For more information, please see the NAB Quarterly SME Business Survey (Q3 2024)