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Business conditions for SMEs remained steady in the second quarter of 2024, but continued to lag behind their long-term averages.
Despite a modest improvement for the smallest SMEs, overall conditions remained below positive levels, NAB’s latest quarterly survey for 2Q24 has revealed.
The quarter also saw SME business confidence improve slightly, although it remained negative, and forward orders softened.
According to the latest report, SME business conditions held at +2 index points, below the long-run average of +6 index points.
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While the smallest SMEs saw a 5-point improvement, their conditions remained negative. Conversely, conditions for medium-sized and larger SMEs deteriorated slightly.
NAB chief economist Alan Oster said: “Conditions for SMEs remained below average in Q2.”
He said that there was some improvement in profitability, but a decline in the employment index and trading conditions.
Sector-specific data highlighted that SMEs in accommodation, cafes & restaurants, and manufacturing continued to experience the weakest conditions. Health, retail, and wholesale sectors also reported negative conditions.
Oster said: “SMEs in accommodation, cafes & restaurants continue to report the softest conditions, alongside manufacturing SMEs, with conditions also negative in health, retail, and wholesale.
“This is now a broad spread of sectors reporting negative conditions which suggests the slowdown in the economy is being widely felt by SMEs.”
Despite the overall challenges, SME business confidence rose by 4 points to -3 index points. Forward orders decreased by 2 points to -7 index points, while capital expenditure fell by 1 point to +4 index points.
Capacity utilisation, however, remained above average at 81.5 per cent, up slightly from 81.2 per cent.
“SME confidence improved again this quarter but is still in negative territory,” Oster said.
“The persistently low levels of confidence among both SMEs and larger firms in our surveys have reflected that firms have remained concerned about the outlook for the economy for some time.”
Cost pressures for SMEs remained high with only marginal improvements. Purchase cost growth slightly decreased to 1.3 per cent from 1.5 per cent in 1Q24, while labour cost growth fell to 1.2 per cent from 1.3 per cent.
“Cost pressures for SMEs showed little improvement in Q2,” Oster said.
“We did see some easing in price growth, however, which might suggest the pressure on margins is building as firms face into a softer demand environment.”
Labour availability continues to be a significant constraint for about 30 per cent of firms, reflecting a tight labour market despite some easing in the unemployment rate.
Overall, the report underscored ongoing economic pressures for SMEs and a cautious outlook for the coming months.
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