Interest rate cuts are finally flowing through to small businesses, with sales spiking after RBA decisions. But will the momentum last through summer?
What’s happening: Australian small businesses recorded 5.5% year-on-year sales growth in the September quarter, according to Xero Small Business Insights data, the strongest quarterly result in two years.
Why this matters: The data suggests interest rate cuts and tax relief are beginning to flow through to consumer spending, offering relief after a challenging start to 2025.
Small businesses across Australia are showing signs of recovery, with sales growth reaching its strongest level in two years during the September quarter, according to new data from global small business platform Xero.
The Xero Small Business Insights update reveals sales grew 5.5% year-on-year in the September quarter, up from 3.9% in June. While still below the long-term average of 7.8%, the figures suggest interest rate cuts and tax relief measures are beginning to impact consumer spending patterns.
Monthly data showed a clear pattern of sales spikes following Reserve Bank of Australia policy decisions, with September recording 8.1% year-on-year growth and June hitting 7.5%: both months following RBA interest rate cuts.
Louise Southall, Xero Economist, said: “After a challenging start to the year, it’s encouraging to see signs of momentum returning to the small business sector. While sales growth is still below average, the recent uptick suggests interest rate cuts and tax relief are beginning to flow through to consumer spending and green shoots are emerging for Australian small businesses.”
Tasmania leads regional recovery
Tasmania emerged as the standout state, recording 6.7% year-on-year sales growth: its best performance since early 2023. Victoria also rebounded strongly, growing 4.7% after a softer June quarter.
For jobs growth, Western Australia led with 3.9% year-on-year growth, followed by Queensland at 3.5%. Overall jobs growth across small businesses slowed to 2.7% in the quarter, down from 3.0% in June, with a notable dip to 2.0% in September alone.
However, the proportion of small businesses growing their workforce rose to 28.8%—the highest share since December 2023. This was partially offset by a slight increase in businesses reducing staff, which rose from 23.7% to 24.1%.
Construction booms, hospitality struggles
At an industry level, 15 of 17 sectors recorded stronger sales growth than in the June quarter. Construction was the clear standout, with 6.6% year-on-year sales growth and 3.9% jobs growth—both representing two-year highs for the sector.
Retail trade recorded 4.8% sales growth, while hospitality achieved 4.4% growth. However, hospitality jobs declined 0.5% year-on-year, marking the seventh decline in eight quarters—a continuing concern for the sector.
The data aligns with the Reserve Bank of Australia’s September statement, which noted improving private consumption driven by rising real wages, tax cuts, lower interest rates, and effects from higher house prices.
Southall emphasised the importance of the upcoming period: “The upcoming summer and holiday period will be critical for sustaining this recovery, so we urge all Australians to support their local small businesses and help them finish the year strong.”
The September quarter results suggest small business owners remain cautiously optimistic, with sales momentum building but workforce expansion decisions still tempered by economic uncertainty.
Related: For more insights on navigating small business challenges, explore Dynamic Business’s coverage of Australian small business trends.
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