• SME business confidence eased slightly, continuing the trend decline from the peaks seen around last year’s Federal election. While this result is consistent with the ongoing sluggishness of demand in the domestic economy (excluding exports), the steady improvement in business conditions seen over the same period has prevented a much sharper deterioration in confidence. These trends are consistent with what has been experienced in the broader economy, according to the NAB Quarterly Business Survey (QBS). SME confidence is gaining most support from enthusiastic property and construction firms. How long confidence levels can be sustained will largely hinge on when (and if) strength in property markets translates into improvements elsewhere in the economy and generates sufficient momentum to snap the spending restraint exhibited by consumers to date. This will be a difficult task given elevated unemployment, low wages growth and ongoing concerns held by consumers over the rising cost of living, which is constraining their discretionary spending (NAB Consumer Anxiety survey). Finance, retail and health firms are least confident, the first recording a sharp drop in confidence during the quarter.
• SME business conditions rose again in Q3, lifting above the series average to its highest levels since 2009, but still well below the pre-GFC highs for business activity. The improvement mostly stemmed from a rise in trading conditions, while profitability was unchanged and employment fell following a series of rises. Conditions improved for high-tier firms, while low and mid-tier firms declined. SME’s are outperforming their larger counterparts.
• Conditions were mixed across industries in the quarter, but trends are broadly consistent with confidence. Property services and construction firms are performing well, as are finance firms (despite weak confidence) – SME construction firms are solidly outperforming their larger counterparts (QBS). In contrast, manufacturing and retail are particularly (but unsurprisingly) weak. Conditions improved in all states but Victoria, and are highest in WA.
• Forward orders eased, but still suggest a moderate lift in SME activity. Capacity utilisation continues to show a solid improvement (albeit still at soft levels) in response to the upward trend in trading and employment conditions (although the latter remains relatively soft).
• Responses to a special question suggest that in the past twelve months more than half of SMEs developed or improved their websites to improve competitiveness and/or looked to develop new products. Meanwhile, price discounting has fallen in popularity as a strategy, suggesting that competitive pricing may be reaching its limits.

For further analysis download the full report.

• Quarterly SME Survey – September 2014 (PDF, 1MB)