Small Business Confidence Surges Despite Dip In Profits

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Small and medium businesses (SMBs) have seen a jump in confidence in the third quarter of 2016 and continues to have a buoyant outlook for the rest of the year, according to the Westpac Melbourne Institute SME Index. This is despite continued pressure on profitability. The optimism could be a result of recent interest rate cuts and the fact that it's getting close to the Christmas season, a busy period for SMBs. Read on to find out more.

The Wespac SME Index, which tracks the economic health and attitudes of SMBs, has jumped by 15.2% in business confidence, going from 83.0 in the second quarter to 95.6 in the third quarter of 2016.

When you break it down by states, NSW saw the highest rise in business confidence but is still behind Victoria:

  • NSW: 99.3 (up 21.6%)
  • VIC: 105.8 (up 15.2%)
  • QLD: 87.6 (up 11.2%)
  • WA: 90.4 (up 17.9%)
  • SA: 74.7 (down 12.5%)

South Australia was the only state to have experienced a dip in confidence. Westpac said this could be a result harder access to credit and finance as well as rising government regulations.

The Westpac research also tracks how SMBs felt about the future with the Future Conditions Index, which showed an 18.7% increase and now sits at 108.6. This is largely attributed to hiring of new staff and a boost in investment in the last 12 months. The index, however, differed by industry with hospitality and recreational services being the most optimistic while manufacturing remained dour about the future.

SMBs are still worried by current economic conditions due to weak activity and declining profits: 5.2% saw a dip in business activity and 17.2% reported a drop in profits over the last 12 months.

Here's what Westpac senior economist Matthew Hassan have to say about the results:

"Some of the positive forward view may reflect the lead-in to the Christmas period, a particularly important high season for many retailers and SMBs in the hospitality sector. Expectations have no doubt been buoyed by recent interest rate cuts as well. The survey detail still suggests current conditions are uneven, while growth is continuing; incomes remain a weak spot for the Australian economy that is clearly pressuring SMBs’ profitability. Perhaps the most promising aspect of the survey is the solid rise in employment reported over the last year. It suggests the positive forward view is not just a hope but something small businesses are actively planning for."


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