Xero sees fifth straight quarter of small business growth

Xero reported continued sales growth for New Zealand small businesses in the March quarter, with its latest Small Business Insights data showing sales rose 3.9% from a year earlier.

The figures indicated a fifth straight quarter of improving sales conditions, with momentum building throughout the quarter. Monthly growth rose from 2.1% in January to 4.2% in February and 5.5% in March.

Growth spread across more industries as lower interest rates began to flow through the economy and discretionary spending showed signs of returning. Other services recorded the strongest sales increase, up 5.4% year on year, followed by retail trade at 5.1%.

Hospitality posted sales growth of 4.0%, its best quarterly result in nearly three years. Construction also extended its recovery, with sales up 4.0% from a year earlier for the third consecutive quarter, following two years of declines.

Bridget Snelling, Xero's Country Manager for Aotearoa New Zealand, said the pattern suggested households were becoming more willing to spend beyond essentials.

"In the March quarter, we saw encouraging signs that discretionary spending was returning. Strong results in retail and hospitality - with hospitality recording its best quarter in nearly three years - suggest households were becoming a little more willing to spend on non-essentials."

"This is consistent with the impact of interest rate cuts beginning to flow through to consumer behaviour, providing some welcome relief for small businesses," said Snelling.

"Of course, we need to consider the broader macroeconomic backdrop: we are yet to see the most significant impacts of the ongoing conflict in the Middle East and how this affects the cost of living in New Zealand."

Snelling also mentioned that rising fuel prices are adding pressure to both business costs and household budgets. While higher energy prices are squeezing margins and dampening consumer spending, small businesses appear better placed to absorb the impact, supported by five consecutive quarters of improving sales and confidence.

Regional picture

Regional data showed the South Island remained the strongest-performing part of the country. Canterbury led sales growth at 6.5% year-on-year, followed by Otago at 5.8%.

Auckland also improved, with sales growth of 3.9%, while Wellington rose 2.9% and Northland increased 1.4%. Each performed better than in the previous quarter, indicating the improvement was not confined to one part of the country.

A modest improvement in small-business employment accompanied the sales figures. Jobs rose 1.1% year on year in the March quarter, up from 0.1% in the previous quarter.

Agriculture led employment growth with a 6.0% increase, while manufacturing jobs rose 2.6%. Construction, which has been under pressure for an extended period, recorded its first annual increase in jobs in more than two years, edging up 0.3%.

Not all sectors shared in that rebound. Retail trade employment remained 2.5% below year-earlier levels, while hospitality jobs were down 3.7%, suggesting that businesses in customer-facing sectors remain cautious about hiring even as sales improve.

Jobs outlook

The regional labour picture was also uneven. Canterbury recorded job growth of 4.4% and Otago 2.6%, but Auckland and Wellington continued to employ fewer people than a year earlier, down 0.7% and 0.5% respectively.

That mix of stronger sales and slower hiring points to a recovery that remains fragile. Businesses appear to be seeing better demand, but many are not yet committing to broad-based workforce expansion, particularly in the largest urban economies.

Snelling said the rise in jobs was an important signal about sentiment among owners.

"The pick-up in jobs growth is a meaningful signal that small business owners are starting to feel more confident about the sustainability of the sales recovery after a long period of caution," said Snelling. "That said, this confidence will be tested in the coming months if fuel prices stay high or supply pressures intensify."