We’re currently conducting our most recent wave of SME research. Last week was particularly important in interviewing some of our barometers of what’s going on out there.
The bottom line is that it’s still hot and the RBA has its work cut out.
Our findings can be summarised as follows …
Many businesses continue to do extremely well. Demand is strong.
They talk about cost pressure, but they are able to pass this through in the form of higher prices.
Even those that don’t particularly ‘need’ to raise prices are doing so – because they can.
Some have seen business conditions soften a little in the past few weeks … but this is not yet at a point where it is especially significant, and certainly not being felt by all.
Some talk about watching the news, hearing that the economy is in trouble, yet their business is booming. They see a serious disconnect – but realise that good news doesn’t sell papers.
But in line with this ‘bad news story’ in the media, while they feel confident about 2023, they are still a touch cautious.
Some of our SMEs need to pinch themselves – it’s been a ripping couple of years …
“It’s been another great year. It’s just been mind blowing. It’s been a strong few years and this year really was a cherry on top, I couldn’t believe it. I was trying to think about why, and I think because, you hear about staff shortages - maybe you’ve just got to get in and do it yourself and you don’t rely on other people as much ... I mean, it’s hard work, it’s been a tough 12 months but I think it’s paid off.” (Steel Manufacturing & Retail, 56 FTEs)
“We have 50% year on year growth – it’s massive – and it’s exciting. And we’re looking at new service areas and growing those out as well.” (Clinical Trials, 230 FTEs)
“We’ve had a terrific last couple of years. It’s really been strong. And really good profits enable you to put on an IT manager and it enables you to think more broadly about the business. If your profit is tight then it’s harder for you to expand because it has a real impact on your bottom line.” (Home Loans, 27 FTEs)
“I noticed that once the new year started back up again, it seemed like everyone went into overdrive to make up for lost time for the previous few months ... It felt like there was a real uptake in opportunity for the beginning of the year, and I just said yes to everything and went completely bananas!” (Digital Media, Sole Trader)
“I’m super excited about business right now and that’s mostly to do with the change of government and the change of transitioning to net zero and renewable energy. So I think finally in Australia we’ve come to the year of EVs – or maybe next year – and we’re very close to that tipping point. So business is good for us, there’s lots happening and we can see a lot of industry now becoming more serious.” (EV Charging Software, 8 FTEs)
Some of the panellists experiencing a boom in conditions attribute this to the fact that they are an ‘experiential’ business – for example, our vintage photographer, tea merchant that delivers an in-person tea-tasting experience, our florist specialising in weddings and events, even our provider of financial training/education …
“It’s so good. I can sleep at night. Isn’t it great? I think it’s a combination of word of mouth, and people searching for experiences within the country.” (Vintage Photography, 2 FTEs)
“Over the last couple of months, things have really picked up. My little tearoom has started getting pretty consistent bookings on weekends and now I’m getting a lot of corporate bookings as well, so I go out to clients’ premises to do tea ceremonies ... With people now returning to the office, I think there’s a real demand to have these activities where people unite together and it kind of incentivises them to come into the office.” (Tea Merchant, Sole Trader)
“Weddings and events are back on. People aren’t scared, wondering if there’s a lockdown and the event doesn’t happen. They were a bit more edgy booking things early this year. Even though things were back on, people were just hesitant. So I think the hesitancy has decreased significantly, which is great for the business.” (Florist, 2 FTEs)
“I think the last 2-3 months has been getting really busy again. Interestingly most of it is face-to-face again. I’m still doing a lot of online but most of it is a legacy, the online stuff was organised 2-3 months ago. Whereas now people asking for face-to-face. People want to get people together again.” (Educational Training/Investing, Sole Trader)
A handful of our ‘barometers’ – our SMEs that are leading indicators – can see that conditions are starting to soften … but they point out, we’re coming off a high base …
“Business is still good. We’ve had 18 months to 2 years of record-level growth in the storage industry and that’s largely been driven by the increased demand from people working from home, kids at home not school, Covid-related online shopping, online retailers storing with us. So all of that stuff really spiked through 2021 but even this year it’s been quite strong … It is backing off a little, mostly because of the moving market – the residential property market, with interest rates rising, less houses being sold, less renovations happening because of cost of funds. So that does slow us down a little bit on demand … But on a like-for-like basis, we’re well into double-digits growth.” (Self Storage, 350 FTEs)
“Business is okay. It feels like it’s kind of softened over the last few months but not in a scary or really meaningful way … Most of the sectors are still performing well, but you can just feel it’s gone off the boil.” (Media, 100 FTEs)
“Our figures are good – we’re on budget, that’s good – but there are headwinds there, there’s a lot more competition. We’re being asked to tender a lot of business. Throughout that Covid period people didn’t go to tender.” (Insurance Broker, 65 FTEs)
SMEs see the news that tells them how dreadful the economy is and that the sky is falling in … but it just doesn’t fit with what they’re seeing themselves …
“We’re finding that what is being said in the media, and what we’re finding, are polar opposites. The media’s talking about everything slowing down, prices are softening, people are getting worried and we’re not experiencing that. So it’s bizarre. You talk to people and they act a little bit worried but then they’re still spending money, buying, renting. We’re very busy … I think the challenge is the media – the noise – I don’t think it’s the reality.” (Real Estate Agent, 65 FTEs)
“It’s always been a scare tactic with the media so it’s difficult to know what’s the truth or not – fake news – but business is incredibly strong, we’re booked up for months and months.” (Curtain/Blind Design/Installation, 5 FTEs)
“With the business, everyone’s saying how hard it’s going to be, so it dampens down your expectations. (Q : But you’re not finding it that hard?) Not at the moment, no.” (Photocopying/Embroidery Services, Partnership)
Conclusion
At the time of writing – and up until the end of last week’s interviewing – SMEs were reporting strong trading conditions. A handful are seeing signs of softening but from a very high base. It’s fair to suggest that the economy is still HOT.
