Small business sales up but economic growth still patchy

Small business sales increased by 2.5% year-on-year in March, according to ANZ’s latest Small Business Sales Trends report, but other research shows economic activity remains below trend.

ANZ’s data is based on the value of credit, debit and Eftpos transactions processed through ANZ merchant terminals.

It also includes all ANZ card transactions processed through other systems for businesses at least two years old with annual turnover less than $5 million.

According to the latest report, small business sales increased by 2.5% year-on-year in March and by 4.8% on a year-to-date basis.

While growth was generally positive across most of the sectors and states, the data once again revealed some areas are performing better than others.

Divergence in sales growth between the resources and non-resources states remains evident, with WA, Queensland and the Northern Territory showing the strongest year-to-date growth rates.

With regard to sectors, non-retail small business sales increased by 2.9% year-on-year in March. But overall, growth remains relatively soft in the retail sector, up just 1.8% year-on-year.

Meanwhile, service-related businesses continue to retain relatively strong growth rates, with restaurants up 8.7% year-on-year, and hotels and motels up 7% year-on-year.

According to Nick Reade, ANZ general manager of small business, total sales have been positive since May 2011, although some areas are still not growing “as strongly as we would like”.

“Interestingly, the trades sector, which has been growing strongly in recent months, only grew by 0.8% year-on-year in March,” Reade said in the report.

“This slight slowdown in growth is also confirmed by what we’ve been hearing from our customers in this sector.”

But overall, Reade said ANZ remains optimistic about the outlook for small businesses in Australia.

“They’re continuing to record positive growth in aggregate terms, and we expect this momentum to continue into the year,” Reade said.

ANZ’s findings are in contrast to the Westpac-Melbourne Institute Leading Index, which shows the Australian economy continues to perform weakly.

The annualised growth rate of the index – which indicates the likely pace of economic activity three to nine months into the future – was 2.4% in February, below its long-term trend of 2.9%.

“This is the sixth consecutive month that the growth rate in the Leading Index has been below trend,” Westpac chief economist Bill Evans said in the report.

“The growth rate has picked up somewhat from the absolute low in November last year.”

“But the modest decline in February does not encourage too much optimism that growth is likely to exceed trend any time soon.”

According to Evans, it has become apparent the case for a rate cut is strong.

“The [Reserve Bank] board is concerned about the sharp differences between sectors and regions,” he said.

“[The board] recognises that there is a significant fiscal tightening, and notes that non-mining investment was likely to remain sluggish.”

“There is a clear observation that, subject to the inflation outlook remaining benign, there is scope to cut rates.”

The Reserve Bank board meets on May 1.