- The Xero Small Business Index for Australia declined six points during the first month of 2022 to 86 points, as Omicron surged.
- Small businesses had a tougher December 2021 and January 2022, compared to November 2021.
- Accountants can use the Index to improve their understanding of the business landscape in which their clients are operating.
The Xero Small Business Index for Australia declined six points during January 2022 to 86 points, as Omicron cases surged in the country. However, small businesses have good reason to be positive that activity will pick up in the coming months, says Xero economist Louise Southall.
“What the Index has shown us in recent months is that small businesses had a tougher December and January, compared to November 2021,” Southall tells Acuity.
“But on a positive note, it also shows us that small businesses have coped much better during the 2021 and 2022 COVID disruptions than they did in early 2020 when the pandemic began.”
Picture: Louise Southall, Xero.
“On a positive note, it also shows us that small businesses have coped much better during the 2021 and 2022 Covid disruptions than they did in early 2020 when the pandemic began.”
With COVID-19 restrictions easing, COVID hospitalisations falling and national and international travel returning, there’s cause to be optimistic – although the current floods on Australia’s east coast may slow the recovery.
The Xero Small Business Index is based on actual aggregated and anonymised transactions from hundreds of thousands of small businesses across Australia.
The six point decline during the first month of 2022 was a significant reduction from the high in November (107 points) and comes after two months of strong sales growth, when small businesses made the most of reduced lockdown restrictions and festive season spending.
The index is made up of the four metrics: small business sales, time to be paid, jobs in small businesses and wages paid by small businesses.
The sales, jobs and wages metrics are all expressed in year-on-year percentage change terms, which removes seasonal factors, and the time to be paid metric is seasonally adjusted.
Useful tools for accountants
The Xero Small Business Index is part of the Xero Small Business Insights program which, says Southall, can be useful for accountants and bookkeepers to consult when interacting with clients.
“We encourage them to use the Index to improve their understanding of the actual environment their clients are operating in. The fact that we are also releasing industry and state-based data gives another level of specific data that they can use when working with their clients on how to grow their business,” she says.
Southall says that one of the main drags on the index in January was a fall in jobs of 1.5% year on year. As a ‘job’ is counted if a person worked for at least one hour during a month, the fall in jobs may be due to more people than usual taking longer holidays or more people on sick leave and isolating due to COVID.
Similarly, a sharp fall in jobs in the education sector – down 13.9% year on year – could reflect the still low numbers of international students in Australia as the border reopening schedule was delayed due to the Omicron outbreak.
“If that was the case, then we should see a recovery in jobs – and the Index – in the coming months,” Southall says.
Strong sales growth for financial services
With the Omicron wave of COVID forcing thousands of people to isolate during January, small businesses faced an extra challenge of having fewer staff to begin with.
“If 10 people suddenly get sick or have to isolate, that has a much bigger impact on a business that has 20 staff than one that has 200 staff,” Southall explains.
“If 10 people suddenly get sick or have to isolate, that has a much bigger impact on a business that has 20 staff than one that has 200 staff.”
Small business sales growth for January was 5.7% year on year (down from the 15.1% lift in the December Christmas period), but this dip was to be expected as the number of Omicron cases grew significantly.
There was strong sales growth in industries such as financial services (16%), administration services (15.8%) and real estate (11.7%).
However, sales in hospitality fell (-7.5% year on year) and there were only small gains in retail (+0.7% y/y) and arts and recreation (+1.3% y/y), as people avoided these types of venues due to concerns about COVID.
Looking at data from specific states, NSW (+6.4% y/y) and Victoria (+4.3% y/y) were well down on the growth rates recorded in December (14.8% y/y and 15.4% y/y respectively). Sales in Queensland also slowed, from 14.6% y/y in December to 7.4% y/y in January.
Xero Small Business Insights program
Use the Xero Small Business Insights program to gain a better view of the small business landscape, including a monthly Index and reports.Explore Xero Small Business Insights