Xero’s July Small Business Index shows that COVID restrictions and lockdowns have dealt a blow to small businesses. Nationwide, jobs growth slowed, sales decreased and wait times on payments from suppliers increased by 2.8 days.
In July, the index fell by 41 points and now sits at 101. This is the lowest index seen since December of 2020.
Xero’s Economist Louise Southall said, “The Xero Small Business Index results for July highlight how setbacks can impact even seemingly well established economic recoveries while the COVID-19 pandemic continues. In June the Australian Index hit a record high but the return of stay-at-home orders across Australia’s major cities saw the Index fall 41 points in July, unwinding all of the gains made in the first half of 2021. This month’s Xero Small Business Index results highlight the current disparity across the states as local restrictions impact.”
Restrictions are responsible for the decline
The index cited COVID lockdowns across Greater Sydney, Victoria and South Australia as the reason for this fall. The data summary states, “By the last week of July, over 50% of the Australian population was living under stay-at-home orders as the delta strain of COVID-19 spread.
Restrictions in Greater Sydney covered the whole of July, impacting almost 25% of Australia’s population. Victoria and South Australia also moved to stay-at-home orders during the month. The impact on small businesses is clearly evident in the Xero Small Business Index.
The data set used in this Xero’s summary applies to July; however, business circumstances have changed significantly in the last month.
“Based on what we already know has happened in August, even more small businesses are now being impacted by the return to trading restrictions. Currently stay-at-home orders have spread to cover all of NSW, Victoria and the ACT. This points to another tough month for small businesses in these states, particularly those customer-contact businesses such as arts & recreation and hospitality,” said Ms Southall.
Compared to June of 2021, jobs growth in the small business sector slowed by 1.8 per cent. The nationwide nature of the report has softened these results. When looking at individual states, NSW saw the slowest jobs growth, 0.4 per cent and WA, the fastest, at 6.7 per cent. These results are unsurprising when considering the stay at home orders impacting NSW.
The industries most affected by slowing jobs growth in July were arts and recreation and hospitality. Both saw a decrease in growth of more than 3 per cent.
Sales also went into decline over July. The rate of sales growth when comparing July to June fell by more than 8 per cent. This represents the lowest growth rate recorded since January 2021. The decline in sales follows the downwards trend observed in June. From January to May, small businesses saw significant growth in sales, equal to or better than the two years prior.
The index showed that the drop in growth disproportionately affected states that went into lockdown during July. NSW was significantly affected and was the only state to see negative growth. Arts, recreation and hospitality, were found to have experienced the most significant drop in sales. However, communication and media, as well as construction, also felt the pinch.
Longer wait times on payments
In its summary of the data, Xero says that longer wait times were unexpected based on last month’s data. Small businesses waited an extra 2.8 days to be paid by suppliers in July. Companies in July waited an average of 23.3 days to receive payment; this follows the all-time low in wait times seen in June of 20.5 days.
The number of days payments were late also increased in July, from 5.1 days late to 6.7 days late. Xero’s data showed that small businesses are being paid a week late by their suppliers on average.
Employees took home just as much in July as they did in June. Wage growth in July remained broadly steady, rising by 2.6 per cent, similarly to June’s 2.7 per cent. These numbers remain slightly below the pre-COVID level of wage growth, which was approximately 3 per cent.
Ms Southall said, “The Xero Small Business Index results for July highlight how fragile economic recoveries can be while the COVID-19 pandemic continues. Australia’s economic recovery looked to be progressing well until this month’s return of widespread restrictions. This period of uncertainty is challenging for small businesses and reinforces the need for them to make sure they are working with their advisor to understand how their business is tracking and consider what government support programs they are eligible for.”