SME confidence plunges as sales and profits slump and dissatisfaction with Government rises

Business confidence among small and medium firms has slumped by a record amount in the last three months, according to the latest Sensis Business Index, with the fall even larger than that seen during the global financial crisis.

The survey of about 1,800 SMEs found confidence fell by 18 percentage points on the back of weak profitability and sales.

Report author Christena Singh says that while confidence and profit levels remain well above the lows seen last year, the large drop in confidence is worrying, as small businesses have a good record at spotting economic concerns. The previous biggest drop in confidence was recorded in November 2007, well before the economy actually started to turn down.

“Small businesses are really on the pulse of the economy at that grassroots level,” she says.

“It’s really important to take heed that businesses are finding things difficult at the moment. Companies just aren’t seeing business coming through the door.”

Singh says what makes this drop in confidence so interesting is that it has not just been sparked by the typical problems of falling profitability and sales.

Concerns about the international economy also weighed on confidence, as did concerns about Rudd Government policy.

Singh says this is unusual – small businesses tend to focus very closely on conditions around their own business, and Federal Government policy does not tend to have a big affect on business confidence.

Singh says SMEs are raising a long list of problems with the Federal Government, including the introduction of the Resources Super Profits Tax, concerns about the level of incentives for small business, industrial relations, wasteful government spending, poor economic management and government interference in business.

While the Government was previously enjoying solid support for its stimulus measures, approval of the Federal Government in the last three months fell 13 percentage points to -26%.

“This quarter we’ve seen Federal Government issues contaminate the confidence data as well,” Singh says.

“In the past, under the Howard Government, we saw support for the Government tending to crystalise around the election, this time we are seeing the opposite.”

The index tracking employment intentions also fell, with more firms shedding staff than hiring, and access to credit also become harder for SMEs.