Wages growth pressures small business profits

Wages growth and non-wage labour costs for small business have risen to their highest level in nine years, according to a survey by St George Bank and the Australian Chamber of Commerce and Industry.

In the September 2005 quarter St.George-ACCI Small Business Survey has found the toughest cost regime for small business since the survey began in 1996.

The survey found: Small business conditions have continued to moderate from the all-time high recorded in the March quarter of 2004.

Small business confidence in the national economy also eroded over the last three months.

Profits are down but business remains confident about the next three months.

Employment growth has been maintained and expectations for the December quarter are buoyant suggesting that the labour market should remain tight.

Australian Chamber of Commerce and Industry chief executive Peter Hendy said:
"The survey released today clearly indicates that wage and non-wage labour costs are both rising strongly, which is putting pressure on small business profits. Additionally, labour-related constraints made up three of the top five constraints on small business investment. The workplace relation reforms being put in place by the Government are coming just in time to help ensure that wage pressures in some sectors are not transferred into the wider economy, which would result in higher inflation rates. The workplace reforms will instead alleviate inflationary pressure by matching wage outcomes with productivity."
Steven Milch, St.George head of economic research, commented:
"The small business sector is experiencing tougher trading conditions than larger firms. A key influence here is the fact that small business has a high representation in areas of the economy that are currently weak, such as retailing and home building, and a low representation in the stronger industries, such as mining. Accordingly, the environment for small business should improve as
we move through the business cycle, with 2006 expected to be a better year for both retail spending and the housing market".