February 14, 2019

NAB SME Business Survey: Quarter 4 2018

Confidence and conditions continue to ease

Small and Medium Enterprise (SME) business conditions continued to decline in Q4 – falling to +8 after having trended down in the past three quarters. Confidence has also declined, falling to 0 index points in December, suggesting on average. At these levels, conditions remain just above average, though confidence is now well below average.

According to Alan Oster, NAB Group Chief Economist: “Conditions for the SME sector pulled back from the high levels reached in early 2018. This trend certainly continued in Q4 with medium and large size SMEs seeing a further deterioration. The improvement in small firms was a positive sign but they remain at low levels. Overall confidence in the sector has also deteriorated and is now below average – something to closely watch as it points to further weakening in business conditions”.

“By industry we saw a decline in property and construction – a result in line with the developments in the residential property market. Health and business services also saw declines in the quarter” said Mr Oster.

“Retail conditions remain weakest at -9 index points and the only industry to report deteriorating conditions. This is unsurprising given the results we have seen across our other surveys and in hard data, but confirms that SME retail businesses have not escaped the malaise in the sector.” said Mr Oster.

According to Mr Oster: “Mirroring the national aggregate conditions have eased in Victoria from high levels, but remain the highest across all states. Generally, the east coast sees better conditions in the sector, with SA and WA lagging”.

“SMEs continue to report demand as the most significant constraint on output – as it has been for some time. The availability of suitably labour is also a notable factor at present, as the labour market tightened over 2018, we saw the importance of this factor increase” said Mr Oster.

There was a broad based deterioration in forward looking indicators in the quarter, suggesting that the weakening trend in SME business confidence and conditions is likely to continue. Expectations for conditions, employment and capex 3 and 12 months ahead declined, as did the forward orders index. Capacity utilisation remains high though also eased in the quarter

“The forward looking indicators in the survey also weakened in the quarter, suggesting that the downward trend in conditions is likely to continue into 2019. While capacity utilisation remains relatively high, stated capex plans have eased. Businesses also believe activity may moderate somewhat with expected conditions and employment declining. It is likely some of this view has been formed by the weakening in forward orders as reported by business and is certainly reflected in their confidence” 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: Q4 2018