Small business wage growth hits five-year high, Xero data shows

| June 10, 2022

Xero, the global small business platform, today released its latest data on the health of Australiaʼs small business economy during April from the Xero Small Business Index. Based on aggregated and anonymised transactions from hundreds of thousands of small businesses, the Index, developed in collaboration with Accenture, is part of the Xero Small Business Insights program.

Overall, small businesses in Australia saw another month of improved performance with the Index rising four points in April 2022 to 122 points. This is a result largely driven by wage growth, which is up 4.1 percent year-on-year (y/y) – the biggest increase in the history of Xeroʼs Small Business Insights series since 2017. However, there are signs of emerging risks, with a sharp slowdown in sales growth in April to 5.8 percent y/y from 12.7 percent y/y in March. This is likely to be at least in part due to rising cost of living pressures which is reducing households’ capacity to spend at their local small businesses.

Graph of Australia Small Business Index showing an increase of four points in the month of April 2022

Joseph Lyons, Managing Director Australia and Asia, Xero said this month, wages have jumped significantly among small businesses – and at a rate higher than we have seen since the Index began.

“While this is a positive sign in the health of the sector, we should be cognisant that small businesses are facing rising costs across the board as inflation continues to climb. Itʼs important for the incoming government and broader industry to consider how they can alleviate some of this growing financial burden.”

Wages growth hits record high

Wages rose to unprecedented levels in April to 4.1 percent y/y, a high not seen since the Small Business Index series began in January 2017. This is a reflection of the tight labour market as small businesses struggle to retain staff and compete for new talent. Construction recorded the largest wage rise at 5.1 percent y/y, followed by manufacturing (4.6% y/y) and hospitality (4.5% y/y).

“While this is a record rise in small business wages, inflation is rising faster which is cutting the buying power of households. This means small businesses are facing the dual challenge of managing rising costs alongside falling purchasing power of their potential customers,” says Louise Southall, Economist, Xero.

Sales stall as cost of living bites

Sales slowed in April to 5.8 percent y/y aer 13 months of strong double-digit growth, with industries that rely on discretionary spending significantly impacted. Arts and recreation (+2.4% y/y), education and training (+3.4% y/y), information media and telecommunications (+4.3% y/y) industries all saw growth slower than the national average.

“With the broad-based increase in the cost of living, consumers are shiing their spending to more pressing bills that can not be avoided. This can be seen in the sales results for April – particularly in sectors such as arts and recreation and retail. Industries that are not directly affected by discretionary consumer spend, such as professional services, saw a larger sales increase,” said Southall.

Jobs remain so as the lack of supply flows on

Job growth remained weak in April, falling 1.1 percent y/y aer a 1.3 percent y/y decline in March. With vacancy rates remaining high, small businesses are battling with the inability to find new staff. Western Australia saw the biggest impact with a decline of 2.6 percent y/y potentially due to Omicron case surging and disrupting workplaces.

“The decline in jobs in April is likely not an immediate reaction to weaker sales but rather is still reflecting ongoing challenges in finding staff. However, should sales continue to be so, we could see this start to affect the job market in a few months time,” says Southall.

To download the full April results, including industry and regional breakdowns, go to the website here.

To find out more about how the Xero Small Business Index is constructed, see the background information and methodology.