The batten-down-the-hatches approach to running a small business appears to be working as the Australian sector retains surprisingly stability despite economic headwinds.
Employment Hero’s June Jobs Report reveals a minor reversal of jobs growth in June, but the quarterly trend continues upwards. Similarly, wage growth is slowing but is holding the line against inflation.
This perseverance comes despite a challenging backdrop of higher interest rates, subdued consumer spending and ongoing cost pressures that have squeezed SME margins.
“June’s results suggest Australia’s SME labour market remains resilient,” says James Keene, Employment Hero APAC Managing Director.
Few Bumps Along The Way But Employment Is Growing
Jobs report data reveals a 0.1 per cent dip in employment growth in June, following a 1.1 per cent bounce in May.
This reflects a broader pattern over the past year, which has seen small monthly peaks and troughs contribute to a steady overall result. Quarter-on-quarter jobs growth is positive, up 1.2 per cent, although this is the lowest figure since August.
Digging deeper into the data, a demographic trend among small and medium employers emerges.
“Employees aged 18-24 were the only age group to record employment growth in June and, underscoring the important contribution younger Australians are making to workforce growth across the SME economy,” says Keene.
Jobs growth among 18-to-24-year-olds is 0.4 per cent in June. Other age brackets have declined by between 0.1 and 0.5 per cent, with the largest drop recorded among over-55s.
While full-time employment has increased 0.3 per cent in June, casual employment is down 0.8 per cent. Although the drop in casual staff may be partly seasonal, it is a departure from the recent trend which has seen businesses boost capacity through flexible labour instead of expanding permanent headcount.
Wage Growth Is Just Holding The Line Against Inflation
After a 1.6 per cent dip in May, wage growth has rebounded in June, recording a 0.5 per cent increase.
Year-on-year, wage growth is holding its own against monthly inflation, sitting at 4.3 per cent compared to a Consumer Price Index (CPI) of 4.0 per cent. But this is the lowest year-on-year increase recorded in the past 13 months. Growth levels have slowed since the beginning of the year, slipping to 4.3 per cent from 5.6 per cent.
This is a noteworthy trajectory for employees hoping to avoid a reduction in real-time earnings. The Reserve Bank has suggested inflation may peak at as high as 4.8 per cent in the June quarter, which would indeed outpace annual SME wage growth if it remains around 4.3 per cent.
Slower wage growth could be interpreted as businesses having no more capacity for pay rises as rising input costs erode margins. But even if they cannot offer financial incentives to stay, employers may find many employees are reluctant to jump ship anyway. Commonwealth Bank is reporting a decrease in the ‘quits rate,’ which measures the number of workers moving between jobs, suggesting people are opting for stability over opportunity in uncertain times.
Bright Spots Emerge As Employers Hold The Line
While the overall national picture is one of small and medium business owners holding the line, there are regional outliers.
The stand out is the Northern Territory, which has seen a 2.9 per cent month-on-month increase in employment growth among small and medium businesses. This builds on five months of positive growth, and reflects a recent drop in the NT’s unemployment rate. Indeed, Treasury data suggests the number of employed people in the Northern Territory has reached an all-time high. The only dampener is sluggish wage growth, at 2.8 per cent year-on-year, the lowest of all states.
The Australian Capital Territory is at the other end of the spectrum, with a reverse scenario. It has seen the most severe month-on-month decline in jobs growth, sitting at -1.3 per cent. That erases a 1.2 per cent gain in May and contributes to an overall trend of gradual decline since February. But wage growth in the ACT has been above the national average, currently hovering around 4.8 per cent year-on-year.
Sector by sector, small and medium businesses in select industries continue to expand. Construction and Trade Services, Banking, Finance and Insurance, and CEO and General Management all built on double-digit year-on-year growth. Administration and Office Support remains the standout category, with annual growth of 19.2 per cent, challenging fears this section of the market could be an early target for AI disruption.
When Will Employers Be Ready To Change Gears?
Small and medium business owners are awaiting key data as they decide whether to abandon their defensive footing. The primary catalyst will be the quarterly inflation figures from the Australian Bureau of Statistics (ABS) later this month. If the Reserve Bank of Australia’s (RBA) forecast of a 4.8 per cent June quarter peak proves correct, economists predict further interest rate hikes will follow. This would mean an additional hike in borrowing costs for SMEs, and may prompt some businesses to begin cost-cutting if margins have been exhausted.
On the other hand, if consumer sentiment and household discretionary spending were to improve, some small business owners may be willing to release the handbrake and increase hiring.
In the interim, employers await with interest this week’s release of June unemployment data after the May figure came in at 4.4 per cent.
“With last month’s ABS labour force figures indicating positive employment growth, we expect that results will remain broadly steady, led by younger workers entering Australia’s SME workforce,” Keene says.
