Overview

SME business confidence remained deep in negative territory in Q4 as economic growth slowed. Confidence fell for SMEs of all sizes in the quarter, and was negative across all surveyed industries, reflecting the widespread concerns businesses hold about the outlook for the economy. Business conditions for SMEs also eased in the quarter, though at +5 index points remained close to the long-run average, and similar to the level of conditions reported by larger firms in the Quarterly Business Survey. SME forward orders fell and capacity utilisation eased, further reinforcing the softening trend seen across the survey’s activity indicators. Labour cost growth ticked down to 1.3% in the quarter but labour availability remained a significant constraint for 36% of SMEs, though purchase cost growth remained elevated at 1.6%. Output price growth edged down to 0.9%, in line with the gradual easing observed in official inflation data.

Comments from NAB Chief Economist Alan Oster

SME business conditions fell 3pts to +5 index points, and are now just below the long-run average of +6. Conditions declined for medium and large SMEs but improved slightly for smaller firms. Nevertheless, the index remains weakest for small firms at -4 index points. Trading conditions, profitability and employment all declined.

“Conditions for SMEs softened in Q4,” said NAB Chief Economist Alan Oster. “With economic growth slowing noticeably through the second half of 2023 as inflation and higher rates weighed on households, conditions for SMEs were negative for a number of sectors including manufacturing, retail and wholesale as well as property.”

SME confidence fell 3pts to -8 index points in Q4. Forward orders fell 4pts to -7 index points and capacity utilisation declined to 81.4% (from 82.5%).

“SME confidence remained deeply negative in Q4, continuing to reflect the widespread concerns of businesses about the outlook,” said Mr Oster. “Confidence was in negative territory for SMEs across all surveyed industries and across the mainland states.”

Purchase cost growth was 1.6% in quarterly terms and labour costs growth was 1.3% (down from 1.8%). Final prices grew at 0.9% overall (down from 1.1%) and the sales margin index deteriorated 1pt in Q4 to -10 index points.

“Labour cost pressures for SMEs eased somewhat in Q4,” said Mr Oster. “This likely reflects the passing of minimum wage impacts that largely took effect in Q3.”

“More broadly, SMEs reported some slight easing in price growth in the quarter, in line with the easing in official inflation measures,” said Mr Oster.

For more information, please see the NAB Quarterly SME Business Survey (Q4 2023)