Australian Small Business Confidence Fell in April

It looks like small business got a shot in the arm from the federal budget just in time, with confidence in the sector at its lowest in over a year.  The Westpac/Melbourne Institute small business index fell 12.7 per cent to 108.2 points in April from February, the worst result since the quarterly survey started in early 2014.

The survey was conducted between April 7 and 16, about a month before the government unveiled a raft of incentives for small businesses in its May 12 federal budget.  Among those measures was a 1.5 percentage point tax cut for the 96 per cent of companies with less than $2 million in turnover.

Small businesses were also allowed to immediately write-off assets worth up to $20,000.  Westpac general manager of small business Julie Rynski said while worries about the economy had weighed on small business confidence at the beginning of the year, she expected the budget measures to give the sector a boost.

The volatile measure of confidence edged up to 0, compared with March’s -1, suggesting that an equal share of firms were optimistic as pessimistic.

“Demand is still very strong, as demonstrated by elevated trading conditions, and employment is also holding up reflecting the strength of the labour market,” said NAB Chief Economist Alan Oster.

“Overall, the survey shows the economy remains resilient. We continue to expect consumption growth to slow as the effect of higher rates further impacts households, but how quickly and how sharply this occurs remains uncertain.”

The still strong business activity showed why the Reserve Bank of Australia stunned markets last week by lifting rates to an 11-year high of 3.85%, when traders had looked for an extended pause, and warned that more tightening might be needed. Therefore, a lot of businesses are looking into liability insurance (learn why you need general liability insurance here).

Markets are still leaning towards a pause in June, although they have priced in a small chance of another rate increase by August.

The survey’s measure of sales declined 4 points to a still very high +20 in April, with the employment index picking up 1 point to +11 and profitability easing 2 points to +11.

Leading indicators, however, softened, with forward orders down 2 points to +1.

Cost growth remained a challenge, with the measure of labour costs steadying at a quarterly rate of 1.9% and purchase costs picking up to 2.3%, compared with 1.9% in March.