Nearly a third of the country's small businesses are reducing their workforces, according to small business platform Xero.
This comes amid continuing sales declines and slowing wages growth, the company says in its Xero Small Business Insights data release for the September quarter,
Xero's NZ country manager Bridget Snelling, said that apart from "a couple of months", small business sales have been flat or declining over the last 12 months.
"The recent data shows this is now impacting wages growth and a growing portion of small businesses are reducing their workforces.
"It’s clear many small businesses across New Zealand are yet to feel the benefit of the OCR [Official Cash Rate] cuts that began in August, or the income tax cuts that began on July 31," Snelling said.
Xero reports that small business sales fell 2.7% year-on-year (y/y) in the September quarter. This was a bigger fall than the 1.4% y/y fall recorded in the June 2024 quarter.
The latest Xero data shows that, overall, jobs are still growing in the small business sector, up 6.6% y/y this quarter.
However, "a closer look at the data shows this growth is fuelled by only 27.2% of small businesses," Xero says.
"This is an indication that this job growth is concentrated in an increasingly small proportion of businesses."
Some 31.3% of small businesses are now downsizing their workforce, which Xero says is the highest proportion of firms reducing their workforce since early 2020 when lockdowns were affecting the business landscape.
The hospitality, manufacturing and construction industries were particularly affected in the September quarter, with 45.3%, 34.9% and 33% of small businesses respectively decreasing their workforces over the past year.
Auckland has seen the largest proportion of small businesses shrinking workforces, with 34.1% of firms reducing workforces in the past year.
In terms of sales reductions, the largest declines were in construction (-5.1% y/y), agriculture (-4.1% y/y) and retail trade (-4.0% y/y).
Wage growth slowed in the quarter to be 2.8% y/y, down from the 3.7% rise from last quarter. Xero says wage growth is now significantly less than the pre-pandemic average of 3.9%.
Snelling says everybody needs "to be doing what we can" to support small businesses during "these challenging economic times". This can be as simple as shopping locally or paying all invoices as soon as possible.
She noted that recent Xero research showed late payments cost Kiwi small businesses $827 million last year.
"We must all do our part, especially the large organisations with unacceptably long payment terms."
15 Comments
Are interest rates the only culprit here? What about the structural issues facing our economy that successive governments have left unattended?
Many argue that RBA did a great thing by not going so hard on its rate hikes. Yet, per capita disposable income in Aus is 8% lower than in 2022 and as a result businesses across the board are filing for insolvency at an all-time high rate.
The real culprit is our over valued, hyped up housing market and the large mortgages required to purchase. This results in sucking the discretionary cash out of the economy. Evident in our Bank's huge profits and the greater economy struggling - hospitality industry leading the way in cutting staff.
...But you won't hear this from vested interests.
Australia is a tale of two (or more) cities. Interest rates are too high for the Victorian economy, which is circling the drain like NZ, yet not high enough to crimp the Queensland economy which is running at full speed (just got back from there, and its pumping).
So while Melbourne is in dire straits, Brisbane is booming. Interest rates are a blunt tool when applied equally across a country where each State has its own unique economy.
We had a big wave of job losses in the first 6 months of 2024, then a lull for a few months thanks to some increased demand from that big inward migration pulse in late-2023. Govt disinvestment. a slow housing market, zero net business investment, and falling demand from those job losses are going to hit us now. Hold on tight.
On a flight the other day I wound up sat next to an old business contact whom I haven't spoken with in a ciuple of years.
He was telling me that his business - which supplies uniforms to businesses - is down 30% YoY in terms of sales to existing customers (he has actually won some big new contracts which is resulting in higher sales overall, but we were talking existing customers in the main).
Why are existing customer sales down 30% YoY?
Because those businesses are shedding staff and not hiring new ones, nothing more complex than that.
As at September there was nearly a billion dollars worth of non performing SME loans. These job reductions are a natural attempt by other SME's to avoid the same fate. Better you lose your job than they lose their house or god forbid the batch, BMW or the boat.
Another 2 billion in non performing housing loans (how many of those have a small business income supporting them).
From Stuff this morning: Liquidator Anthony Pullan, the Official Assignee, told Stuff the Inland Revenue Department (IRD) put Auckland-based R-Lits Contracting into liquidation on October 7 with a reported debt of $7.3m.
If the IRD puts you into liguidation you can imagine how long you, as a business owner, haven't paid PAYE for your employees. 6.8 b NZD is total sum of all tax arrears. I don't believe dole bludgers cost that much. Government should spent the same effort in chasing business owners for paying their taxes on time as being punitive for beneficiaries.
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