Speaking Sensis

Australia’s small and medium businesses have recorded another record quarter of surging business confidence – author of the Sensis® Business Index Christena Singh tells us where exactly we are on the path to economic recovery.

It was great to see another surge in business confidence amongst Australia’s small and medium businesses this quarter. In the September 2009 Sensis® Business Index we saw confidence up 20 percentage points to a net balance result of 50 per cent.

But it is important to look at the path we have trodden over the past few years.  This result has come from a record low of 12 per cent just two quarters ago.  Overall, the highest result we have every measured for SME net confidence was 67 per cent back in August 2004, so a result of 50 per cent, coming from a record low two quarters ago is strong by any measure.

If we take another step back, it is almost two years since Australia’s small and medium businesses told us their confidence was slipping – we measured the largest single quarter drop in SME confidence in November 2007, with confidence falling almost every quarter between then and June this year. So to see two successive records set in growth in the confidence indicator is great news.

While the results this quarter are very positive, it is important to look at the detailed analysis as well, and this shows that the growth in confidence and expectations is much stronger than the growth in performance. The September 2009 results saw sales improve strongly, but it was to a zero per cent net balance – this means that the proportion of SMEs that increased their sales in the past quarter was exactly balanced by the proportion that recorded a fall.

Likewise, profitability improved, but remains net negative. Employment fell back to net negative five per cent, and while the capital expenditure performance was strong, it has continued to outstrip expectations, with SMEs still hesitant about investing in their businesses.

So while the signs for recovery are good, there are still downside risks, and it will be important to see the performance indicators move into positive territory before we can really say that we have a sustainable recovery in place – but at least now the signs are positive and heading in the right direction!