Over the coming year or so I believe that many business owners will experience hard times. Customers are spending less, supplies are still expensive, debtors are paying later, jobs being delayed, firms going bust.
This will lead to tough times, ones that will get better in the future but short term pain is very likely. Take for example the fact that we currently have the highest number of businesses going bust since even before the pandemic, a trend that is likely to continue.
Do not be one of those statistics, protect your business by having cash flow and capital buffers. Aim to have 3-6 months in capital (mix of cash and lines of credits) to cover expenses. This is a good margin of safety, and even if you do not need or use it, you will be protected from unforeseen events.
It is likely that we will see a technical recession emerge at the end of 2023 or early 2024. The only question I have is how deep it will be, and the pessimistic side of me believes it will be quite deep.
Anyway, here are four big stories to be across:
Labour market tightens further
Business profits stagnate
Wages growth hits 11-year high
Household spending rises 6%
Read more below.
New unemployment data from the Australian Bureau of Statistics has found the national unemployment rate fell between April and May, from 3.7% to 3.6%. That was caused by a monthly increase in the number of employed people (by 0.5%) and a decrease in the number of unemployed people (by 3.1%). Despite that, the number of hours worked by all those employees actually fell (by 1.8%).
“Even though hours worked fell in the latest month, their strength since late 2022, relative to employment growth, shows the demand for labour in a tight market is being met, to some extent, by people working more hours,” according to the ABS’s head of labour statistics, Bjorn Jarvis. Another key data point was that while unemployment fell in May, underemployment rose, from 6.2% to 6.4%. That suggests there is a significant number of people who would like to work more hours, which may give hope to businesses that are struggling to find staff.
Company gross operating profits are continuing to grow, but at a below-average rate, according to the most recent data from the Australian Bureau of Statistics (ABS).
Since the turn of the century, gross profits in the March quarter have increased by an average of 3.1% on a quarterly basis and 10.6% on an annualised basis.
However, in the March 2023 quarter, gross profits rose by 0.5% on a quarterly basis and 7.1% on an annualised basis.
Focusing solely on the annualised results, these were the industries that recorded the biggest increases in gross profits:
Accommodation & food services: up 130.2%
Administrative & support services: up 37.5%
Transport, postal & warehousing: up 37.3%
Meanwhile, these industries recorded the biggest declines:
Rental, hiring & real estate services: down 13.4%
Arts & recreation services: down 19.2%
Financial & insurance services: down 41.5%
Wages are growing at their fastest rate in 11 years – and there are three main reasons. The Australian Bureau of Statistics (ABS) has reported that wages in the March quarter rose 3.7% on an annualised basis, the largest since 2012. The ABS's acting head of prices statistics, Leigh Merrington, said rising wages growth was being caused by “low unemployment, a tight labour market and high inflation”.
Unfortunately, though, while wages are rising, productivity is falling, Reserve Bank of Australia governor Philip Lowe revealed in a recent speech. "Indeed, the level of output per hour worked in Australia today is the same as it was in late 2019. This means there has been no net growth in productivity since then. The reasons for this are not well understood." he said. "It is possible that with the pandemic now behind us, productivity growth will pick up. Advances in science and technology, including increased digitisation and the use of artificial intelligence, could also help. So too could further improvements in the way that services are delivered as well as reforms to public policy. But there is considerable uncertainty here."
Consumers remain in a spending mood, but there’s been a clear reduction in the rate at which their spending has been increasing. Households spent 6.0% more in April than the year before, according to the Australian Bureau of Statistics (ABS). That compares to 29.1% through-the-year growth in August 2022. “This is mainly due to lower growth in spending on consumer services, like holiday travel and eating out, which continues to normalise following the COVID-19 pandemic,” according to the ABS’s head of business indicators, Kate Lamb.
The April data also revealed the continuation of another trend, with growth in services spending (8.4%) exceeding goods spending (3.6%). Throughout the pandemic year of 2020, spending on goods increased, while spending on services decreased. Since early 2021, spending has consistently increased for both categories – but at a faster rate for services. Want to expand? Call me for a loan