Tradie bust upon us

Via the ABC:

Small businesses in general — and tradies in particular — have suffered a serious deterioration in their trading conditions and profitability, according to a survey from NAB.

The drop-off for small and medium enterprises (SMEs) was far sharper in the second quarter than for the bigger end of town, which was reported in the NAB broader business survey.

SME business conditions deteriorated further in the second quarter and are now negative and well below trend.

The survey also found the deterioration occurred across all firm sizes and across most states and industries.

Not surprisingly, the conditions are weakest in the property and retail sectors.

NAB chief economist Alan Oster described the results as “sobering”.

“The things that worries us are, one, it [business conditions] has come down a lot, and two, it is particularly the small end of town that has come down a lot — and that makes us nervous,” Mr Oster said.

The quarterly SME survey is separate from the NAB’s major survey and breaks the sector into three groups: low-tier (turnover $2-3 million), mid-tier (turnover $3-5 million) and high-tier (turnover $5-10 million).

A graphic plotting business conditions in the SME sector.
While there was a pick-up in SME confidence in the aftermath of the federal election and due to expectations of lower borrowing costs, Mr Oster said the most recent monthly survey showed confidence was unwinding again.

“We don’t think this [higher confidence] will persist with conditions so low and forward indicators pulling back further,” he said.

Worryingly for the future, most leading indicators are weaker.

Forward orders are negative, while expected business conditions and business investment on a three-month horizon have pulled-back, alongside a decline in capacity utilisation.

There is little good news on the jobs front either, with a sharp drop-off in “low-tier” firms with turnovers of $2-3 million and four to five employees.

“The employment index fell sharply and is quite negative. This suggests that sluggish demand that has been evident for some time is now feeding through to hiring decisions” Mr Oster said.

Conditions have weakened across all states over the past year but remain most favourable in Victoria, with all other states now in negative territory.

Western Australia remains weakest followed by New South Wales.

That is your dwelling, infrastructure and renovation busts biting:

Leading to a tumbling construction PMI:

It’s going to get worse for tradies before it gets better.

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