According to the Small Business Index report generated by online accounting software firm Xero, small businesses have increased wages by 6.8% annually. This comes close to matching the year-on-year annual inflation rate recorded in June of 7.3%. The wage hike is the highest since the series began in January 2017, with the construction sector having the highest wage growth of 8.1%, followed by manufacturing with 7.2%.
Overall, the Small Business Index increased 23 points in June to a high of 146 points. This growth was driven by the surge in wage growth and small business job strength across the country. This is a marked improvement on May’s results when the index dropped to 119 points, a decline of nine points from the previous month.
The boosted earnings have helped small businesses to attract more employees, even from larger corporations. Job growth was found to have risen to 4.4% in June, up from 3.7% in May. However, this move may not be all good news for the sector. Sales growth in June was found to have reached 3.3%, which is the slowest growth rate recorded since September 2021.
All sectors were found to have suffered a slowdown in sales growth, with the hospitality and retail segments being the hardest hit. Where price impacts were taken into account, sales volumes were found to have fallen in June by 4%. Small businesses were found to have lower sales volumes for both goods and services than in June 2021.
Craig Hudson, Xero’s Managing Director for New Zealand and Pacific Islands, said that small business owners were close to their employees and wanted to support them through the impact of inflation. He noted that it was a balancing act for businesses who though needed the strong wages to attract staff, had to ensure it was matched by sustainable sales growth.
He acknowledged that the situation was made more complex by close ties with customers who small business owners did not also want to worsen their situation by adding to their cost of living challenges by raising prices. Hudson said that small businesses needed to prepare for the possibility that sales growth could continue to slow and needed to stay on top of their books to maintain this intricate balancing act.
With the slowdown in sales growth being attributed to rising costs that have put pressure on customer spending, small businesses may eventually be forced by inflation to increase their prices to recoup the revenues they sorely need. Xero’s director of business growth, Charlie Nicholls, also affirms that if sales continue to lag, small businesses will need to balance the cost of their workforce with the revenues coming into the business.
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