Small business sales drop for the first time in two years, job growth still strong

New data shows Kiwi small business sales dropped for the first time since September 2021 last month. Photo / Alex Burton

The outlook for small businesses “remains challenging” with the value of sales in September dropping for the first time in two years, according to new data from Xero.

Data from the small business accounting software firm showed the face value of invoices filed by small businesses dropped 1.5 per cent last month, the first decline in sales since September 2021 when Auckland small businesses were under pandemic restrictions.

Xero country manager Bridget Snelling said weak sales were disappointing but expected considering economic headwinds and the cost-of-living crisis hitting Kiwi households.

Snelling said: “The drop in small business sales is a concerning factor which shouldn’t be overlooked. It’s clear the road ahead remains challenging for our small businesses as inflation, interest rates and the cost of living stay top of mind. That’s why it’s crucial to keep supporting them wherever possible and shop local when we can.”

The fall in Kiwi small business sales is in sharp contrast to Australia and the UK, with Australian small business sales growing 5.5 per cent last month while sales in the UK were up 1.1 per cent on last year.

“Sales are inconsistent across the country, with some regions facing more challenging times than others,” Snelling said.

“Customers don’t have much left over to spend buying from small businesses once they’ve covered household and utility expenses, and it’s clear this is having a real impact on sales.”

Snelling said however that small businesses in NZ are “sitting in the middle of the pack”, with the US experiencing a 7.7 per cent drop and Canada a 5.6 per cent drop in June.

“With our new government focused on the economy and bringing down inflation, it will be interesting to see how this impacts the country’s small business sales over the next quarter,” she said.

Sales in September averaged 0.7 per cent annually for the September quarter, down from an average of 4.3 per cent in the first half of the year.

Xero found the weakest average sales growth in the September 2023 quarter was in Taranaki, down 3.9 per cent.

In the same quarter, only three sectors reported positive average monthly sales growth, with hospitality and service sales up 1.4 per cent, and construction, up 0.1 per cent.

However, sales from agriculture businesses were down 5.4 per cent, which may reflect the impact of the global economy on NZ exports.

Employment growth

Despite weaker sales, data showed job growth was strong last month, up 6.9 per cent year-on-year, which Snelling says is “consistent and impressive”.

She said however that job growth may not be sustainable if sales drop further: “If sales continue to trend downwards, this fast-pace jobs growth could be difficult for small businesses to sustain.”

Services, manufacturing and hospitality had the strongest job growth in the last quarter, up 11 per cent, 7.5 per cent and 7.2 per cent respectively. Employment in agriculture was the weakest industry over this period, up just 3.4 per cent.

Tourism drove job growth in Otago for the September quarter which was up 8.3 per cent on last year, followed by Canterbury (up 7.8 per cent) and Auckland (up 7.7 per cent), while Waikato reported the weakest job growth, up 5.2 per cent on last year.

Wage growth

Wages in September were up 3.5 per cent on last year with an average growth of 3.4 per cent for the September quarter compared with last year, down from the most recent peak of 6.5 per cent in November 2022.

Snelling said however that wages are not keeping up with inflation.

“Although small businesses may welcome this drop in wage increases, wage growth still remains below inflation. This puts small businesses in a vulnerable position as real wages are falling, meaning small business sales could remain under pressure.”

The hospitality sector had the largest wage increase in the September quarter, up 4.2 per cent on last year, while agriculture continued to lag behind other industries with only 2.3 per cent wage growth for the same quarter compared with last year.

Xero data showed Kiwi small businesses were paid on average six days late last month, and 6.4 days late in the September quarter.

The longest late payment times in the September quarter were across manufacturing (8.3 days late), followed by real estate (7.1 days late).

Snelling encouraged small business owners to look into digital tools available to help manage cash flow and streamline operations to improve productivity.