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Wage growth and payment times slow in Australian small businesses

Wage growth and payment times have slowed in May according to the Xero Small Business Index.

Wage growth and payment times slow in Australian small businesses
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The index fell only 1 point in May 2022 to 124 points. While small-business jobs increased 0.3 percent year-on-year and sales growth rose to double digits (10.8 per cent y/y) these results were offset by slower wage growth and longer payment times. However, even after a challenging start to the year, small businesses have recorded four months of above-average performance.

Joseph Lyons, managing director Australia and Asia, Xero, said while the data indicated only small growth, it shows there is support for small businesses.

“It’s been an ongoing challenge for many to find talent, hampering their ability to fully recover – we all know a restaurant or cafe that’s struggled to open its doors due to lack of staff,” he said.

“We hope to see this growing jobs trend continue as Australia gradually welcomes new talent from overseas and expands the labour pool.”

Small-business jobs grew 0.3 per cent y/y, a small but positive result after two months of declines. The largest job growth was recorded in the administrative and support service industry (4.5 per cent y/y), while education and training continued declining for the ninth consecutive month at 5.0 per cent y/y.

“While jobs remain soft, this is a welcome break following a trend of slower and falling jobs growth over the past seven months. Ongoing high levels of job advertisements indicate supply remains the issue, with demand for more workers clearly there as small businesses continue to compete for staff,” said Louise Southall, Economist, Xero.

Sales rebounded in May increasing to 10.8 per cent y/y, up from 8.3 per cent y/y in April, due to a combination of rising prices and higher sales. Along with the largest jobs growth, the administrative and support service industry also recorded the highest sales result at 20.4 per cent y/y.

However, with cost-of-living pressures rising, discretionary spending-based industries including hospitality (2.8 per cent y/y) and information media and telecommunications (6.4 per cent y/y) saw softer results.

“With inflation continuing to rise, this result was expected as Australians reduce discretionary spending and focus on necessary purchases. Consumers are becoming more pragmatic due to the combination of increasing prices and only modest wage growth. This can be seen in the weaker sales results for the hospitality, information media and telecommunication industries,” said Ms Southall.

Wages slowed in May to 3.7 per cent y/y from 4.3 per cent y/y in April, impacting all industries and regions. Transport recorded the slowest growth at just 2.9 per cent y/y, followed by arts and recreation at 3.0 per cent y/y. This result comes as a surprise, given that the tight labour market should be pushing wages higher.

The surprise decline in wages in May, coupled with the soft jobs results in recent months, suggests small businesses might be struggling to compete with larger businesses to find the staff they need to keep growing, said Ms Southall.

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