How are SMEs reacting to wage stagnation at home and Donald Trump’s policies in the US affecting business sentiment? Are most business owners expecting more or less money in their pockets in the year ahead?
We asked Andy Scott, head of research at Momentum Intelligence, to outline the results of the latest quarterly Australian SME Business Sentiment Index.
Speaking exclusively on the My Business Podcast, Andy reveals some interesting trends emerging around:
• The take-home pay of business owners
• Differences in outlook from employers and their employees
• Hiring intentions
• Overall economic sentiment
Enjoy the show!
Adam Zuchetti: Welcome to the My Business podcast. Hi everyone. Welcome to My Business podcast. Thanks for tuning in. You'll notice that it's not Phil Tarrant signing in today, he's actually away on business. So it's Adam Zuchetti leading the charge here. I guess it's a bit of a lesson in itself, in that you really need reliable people to step up if you're unable to take on task. You can't be everyone and everywhere, despite what it may seem and all the different demands. Today, we have in the studio someone who regular listeners will remember. We've got Andy Scott from Momentum Intelligence. Andy, how are you going?
Andy Scott: Good afternoon, Adam. I'm well. I'm pleased to hear yourself big yourself up like that, there as well.
Adam Zuchetti: Why not? Why not?
Andy Scott: You are the reliable man stepping in today, and absolutely, mate. You don't blow your own trumpet you can't rely on anyone else to do so is what I always say.
Adam Zuchetti: Exactly. Particularly when you're a smaller business. No one's going to do it for you.
Andy Scott: Indeed, indeed.
Adam Zuchetti: So, Andy, we've got you back in. Last time I believe was the end of 2016, and we were talking about the launch of the Australian-- what was the survey called?
Andy Scott: It was the Momentum Intelligence Australian SME Business Sentiment Quarterly Index Survey.
Adam Zuchetti: That's nice.
Andy Scott: I wish I thought the name of that through better so I had a punchy acronym, but I don't unfortunately, so I'll have to come up with something, but fundamentally what it is, is that we do a regular sentiment survey across thousands of business owners across the country. What we look to do is ask them a range of questions relating to their business and how they see the next six months panning out. From that there's six questions that we distil down to give ourselves an index that we think gives a reasonable indication of how most small business owners are seeing their business moving forward, and what their levels of confidence are around the business, and I guess their overall sentiment of business in general.
Adam Zuchetti: Just off memory, I think the last one was quite positive for SMEs overall. It was quite a healthy, stable environment. Would that be a fair analysis?
Andy Scott: Yeah. Look, I think there were... as is always the case with, I suppose when you've got something, an amalgamation of various things there were green shoots in there that looked fantastic. There were some things that are always areas for concern and people like to look over, but by and large it told a reasonably good picture, I think of the Australian business marketplace.
Adam Zuchetti: So, looking now at this quarter, were there any really big changes, or any surprises that have come through in the data.
Andy Scott: By and large there wasn't. Overall, the index dropped by 2.11 per cent, which in the bigger picture is not a huge swing. Particularly if we look at the time period that this is done for. The second survey was taken around the January window. There's a lot of people coming through, Christmas's come through quite heavy, hectic times in their business, so there's a lot of times. There's also a time when there's a little bit of seasonal tidying up as well in a lot of industries, so it's not unusual to see it's sentiment to be not quite as gung ho and robust as it might be, because of those figures that are coming through the business.
I think when you look at that moving forward, though, and certainly questions that we don't include in the index per se, that shows us quite a lot of positivity. I think the thing that was, I'll say not necessarily most interestingly for me, but when we spoke last time we spoke about the concern that small businesses have with the incoming government's management with the economy, and how that moved forward.
If we look at that 2.11 per cent change -- bear in mind that's gone down -- almost half of that is taken up by the failing sentiment in small business owners if they're happy with the government's current management of the economy. You don't have to been living under a... Rather, it's anyone unless you've been living under a rock will be quite confident of the battering that the Liberals taken in the polls. At national levels, certainly at state levels as well, there's a lot of things where local governments have been taking hits as well.
It's not necessarily a surprise to see that reflected in that data, but as we said right then, if the key drivers of your economy, and key employers in your economy that have such an impact on the wider country, if they're looking at you down the barrel quite negatively, it's not a great place for a government to be at all.
Adam Zuchetti: No, but at the same time, there are a lot of businesses that really take that to heart, and think, "Okay, well, I'm not happy with the way the government's doing", but is that really going to affect them on the ground in their operations on a daily basis?
Andy Scott: Again, look, that is absolutely the challenge of it. I was at a conference recently -- a fantastic conference for mortgage brokers through one of your sister titles actually, The Adviser, and it was the Advisor's Better Business Summit, and there was a wonderful speaker there by the name of Chris Helder, who made a whole point about how you could, in effect, shape your reality by your perceptions to it. A key part of that was around really worrying about what you can control, and not worrying about what you can't control. I know Phil is a big advocate of that as well.
I think there's two types of business owners in these situations. There are ones that... Well, two types of people, really. There are ones who will sit there and blame everybody else and look for problems and say, "Well, this is why I can't get ahead. This is why I can't move forward. This is why..." There's a whole list of reasons why you can't do it. But instead, you get entrepreneurial business people who go, "You know what, there's opportunity here. There's something to do here. There's a way that I can make this count for myself." I think there are those two types of business people, and I think you're always going to see that balance in these sentiments, between those that see the glass half full and those that see the glass half empty. I guess that really becomes apparent when you see a drop like that... I think the incumbents are really doing a bad job when that sort of thing comes through in the data.
Adam Zuchetti: Now obviously, speaking on the government level, in January we had President Trump sworn in in the US. There's been so much coverage about that around the world, and the implications that has on business. I understand that in the latest survey you actually asked about this. What were the findings around that?
Andy Scott: That's right. You may remember, if you cast your mind back the last time that you had me on as a guest, Adam, I think Trump had just won the election.
Adam Zuchetti: I think that's right.
Andy Scott: He was president-elect at that time, so he hadn't actually been sworn in. We'd also... the survey that we'd done previously had happened just before that election had been called. It was quite the interesting, I suppose, between two stools position for us to be in, in terms of gauging sentiment. I know it was spoken about at the time, that we should add that in, and I'm glad we did, because it seems almost impossible to read a story nowadays without Trump being in it. You have to have him in a news story, apparently, otherwise it's not a successful news story.
Adam Zuchetti: It's a fake story.
Andy Scott: There we go, we'll be fake news, regardless of it, so. But there's two question that we asked. We split our answers here between employers and employees. The question was, "What impact do you think Donald Trump's presidency will have on the economy overall. Now, that's a reasonably broad question, but I thought it was quite -- particularly as Trump touts himself as a businessman, as an entrepreneurial guy, as someone who will really get the economy moving, not just on a national level, but his implication in the rest of the world will help those things moving forward.
With business owners, we found that 28.1 per cent were mainly positive, they thought that the impacts that he would have on the economy overall, which is getting up to almost a third. I suppose conversely you had 35.8 per cent who thought it was going to be mainly negative, and then of course you had 36 per cent had little impact either way. To be honest, I think those figures really broadly sum up what most people think about Trump. You will get people who go, "Oh, I think it'll be all right." You'll get people who think he's the worst thing ever, and you'll get people who'll go, "Pfft. He's just another politician. Nothing will change too much."
I think most business owners are pragmatists, and I think that reflects that. I think what's interesting, though, is when you look at the employee, you see a very different picture. We asked the same question: "What impact do you think Donald Trump's presidency will have on the economy overall?" Nearly 50 per cent said negative. 48.8 per cent. So it's clear that the man or woman on the street is not a fan of the Big Don, that's for sure.
Adam Zuchetti: Do you think this is a sign that business owners are taking less interest in the news than your average Joe Blow?
Andy Scott: I'm not sure if it's necessarily a sign that business owners aren't interested in the news. I think savvy business owners will always be aware of what's happening immediately around them, and the thing that, even if they don't impact them, they can take advantage of. I just think it's the question of, you put a lot of business owners together and you ask them the same question and you'll get people who broadly think they should different ways. We should go left, we should right, no, we should stay where going, where we are. So it didn't really surprise me to see that sort of split.
I think the fact that -- and you can argue -- there's been thousands and thousands of column inches written on how successful as a businessman he has been, but there's no doubt he's not completely out of business no matter how many times he may or may not have made the fortunes that he claims, or deny the bankruptcies that he may or may not have had. As a businessman, I think business people will recognise, "Well, it's going to be a new approach and I think that might be okay."
Adam Zuchetti: That question was about Donald Trump's presidency on the overall economy, but then you drill down and you ask both business owners and employees about the impact of Trumps policies on their particular company. Was that a similar split, or were employees more concerned than business owners?
Andy Scott: Well, no. I think it's interesting what you see about that, because I think we see it in the difference between what people think because it's fashionable, and it's good, and it's contemporary, and it's in the news, and the reality of the situation. Because we asked the same question: "What impact Donald Trump's presidency will have on your business?"
For business owners in particular, same answers, mainly positive, maybe negative, little impact either way. 71 per cent of people said "little impact either way". Whereas I think it's... I think because something like this is great to see from afar, it's great to watch on the news at night, it's confounding sometimes to watch when he opens his mouth and says... it's not so much what he says, but all the running around it that goes with that. The media will get into a froth about it as well. But I think the reality is that it's a long way away from what's happening in Australia, and it's not really going to affect me that much either way.
Adam Zuchetti: Vey good. We've come into the employee and employer debate. I want to explore this in a bit more detail. Last time one of the questions that you were asking were about hiring intentions. I think, off memory, a lot of businesses were looking to keep numbers quite steady. Is that right, Andy?
Andy Scott: Yeah, pretty much. We had about 74 per cent of people said they weren't hiring at the moment. Which, again, part of that becomes seasonal as well. Even so, that's not necessarily a huge concern. Consequently there weren't a lot of people saying they were looking to downsize and lay off workers as well. I think we're in an nice holding pattern. I think what's encouraging to see, even though it's a small change, that same question now there's a high percentage of people who are looking to hire this quarter compared. It's only gone up 1 per cent, but again, anytime that there are people looking to hire it means job creation. Job creation is good for the economy. Not just for the money going around the tills, but also of course for the general health and social well-being of the country as a whole. Whenever there is an increase in employment opportunities, which is driven by employers looking to hire, I think that's something that we can all be quite excited about.
Adam Zuchetti: Okay, so that's good news. If business owners are looking to increasingly hire more staff, that obviously has ramifications for revenues and profitability. Looking at the stats here, it looks like they are slightly lower in terms of revenues, but still looking quite healthy.
Andy Scott: Yeah. I think part of this is down to the change that happens during this period as well. When I first arrived in Australia 17 years ago, I was quite staggered by how much the economy shut down over the Christmas period. I suppose a couple of things happened in that time. Part of it was my readjustment, not realising that we have the perfect storm of Christmas, and school holidays, and summer in Australia happening all at once. Part of it, of course, is the hangover from, I suppose for want of a better phrase... simpler terms, well, "Ah, she'll be right, mate!" They can do it, that's the worst accent ever, but "I can do it later."
Increasingly, with the globalisation of Australia, the opening up of Australia, it's caught up with how most of the Northern Hemisphere -- which doesn't really shut down at all for that time period- - and certainly if we look at Asian countries as well, historically it's not that big of an impact during that time. I think they're getting there with smaller and smaller and smaller through that fallow period, but I think it still exists to a certain degree. It's just those windows have got smaller. To see those sort of concerns around that, or those things -- holding pattern like that, it doesn't really surprise me, because I think it's sort of ingrained a lot into that psyche, that we'll just sit in a holding pattern, sit in a holding pattern, sit in a holding pattern.
Very much like, if you look at the the housing market as well, it does the same thing. Spring and autumn are the big ones. You get to the middle of the summer and no one does anything. You get to the middle of winter and no one does anything. I'm oversimplifying, of course. Everybody's mad for property in this country, but even so, there are some obvious peaks of activity. I think that's when people are more inclined to forward-think, and be more bullish about their growth projections.
Adam Zuchetti: This obviously gives a good backdrop of capital expenditure. The survey results were showing that over a third are expecting that to increase. Again, not so surprising if they're adding staff that's going to add to the cap ex.
Andy Scott: Absolutely. Again, these numbers are generally moving up from where we saw them in the previous quarter as well. Which I think bodes very well. You look at the backdrop of other things that possibly can explain that why that data is, and why those things are happening. If you take out, even from our own sentiment index, if you take out the government's management of the economy, their sentiment has stayed pretty stable. So that's a very specific example of why those problems are.
If you look beyond what's going on in the market, you look at how the ASX has been performing over the last three months, and it's been nothing but really fairly consistent growth on growth, after a little bit of a wobble that we had towards the tail-end of last year. I think that period of Australia... that generally good place that the Australian economy is in, with Australia waking up from that Christmas/summer, call it what you will, period of getting a quick smoko or a quick nap, I think that's starting to now really see it and flow through the numbers.
Adam Zuchetti: Something that I thought was very encouraging came down to personal income of business owners. It's looking increasingly likely for the majority that they're expecting their personal income to surge in the coming period. That was quite interesting. If profitability is coming off slightly, but revenues are increasing, they're still looking to capitalise on that for themselves.
Andy Scott: Yeah, and I think at the end of the day it's a really, really important measure of how the environment is for business owners at the end of the day. Because you'll get some business owners, who they just love to have a go. They're serial entrepreneurs. Really, they're not in it for the money. They're in it for giving it a go, and they love giving it a go, and that's fantastic.
But let's be honest, most business owners are in the game to make more money than they can believe that they can get as an employee. That's why they're in the game. For those guys and ladies to be able to go, "Yes, this is working for me. It's successful," that's a good thing, because as is always the case with us in humans we like to copy what's around us. We see something that's successful, and that encourages us to have a go at it as well. Being able to see lots of business owners who appears to be doing very, very well, not only does it give confidence to the employees that yes, it's a good place to be right now, but it also gives confidence to new people coming on, and going, "You know what? I'm going to give it a go. You know what? I am going to exercise that idea. You know what? Today is the day I take the plunge."
The growth of small businesses means that in a shifting and changing economy, new businesses have to come online all the time. To have those role models of people who are successful, and upbeat, and will sitting there 'round the barbie, going "Yeah, mate, it's going better than ever for me. Yeah, I'm really upbeat about the year," I think that's someone we can all be really excited about.
Adam Zuchetti: Something else that's obviously going to impact, I think, next quarter, if you're happy to come back then and give us the latest results then?
Andy Scott: Well, we'll see.
Adam Zuchetti: I'm getting a cheeky grin. Yep. I think we can talk you into it.
Andy Scott: No, of course. I'd love to come back, Adam.
Adam Zuchetti: Obviously, last week, with the productivity commission coming back and the penalty rates decision. In terms of employees expecting a pay rise, I think that's off... It looks to me quite stable this quarter from last quarter. Are you expecting to see quite a shift next time, when the impact of this change in penalty rates, it starts coming through?
Andy Scott: I'll be really interested to see what, if any, change there is across the board on that. Myself, as an employee, it's not going to affect me one iota. I know where lots of people, certainly in a white collar sector, for whatever reason, it's not going to affect them at all, in that regard. So it'll be interesting to see if it has a greater impact on overall sentiment that employees have. I think certainly for me, drilling down into where we look at the demographics where that might impact, I think we'll see some really interesting data in there as well.
Adam Zuchetti: You'd think it would be more the smaller end of town that would potentially be more impacted. Your cafes and fast food outlets, your corner fish and chips shops -- those kind of things. When they're trying to open and wages on a weekend, particularly on a Sunday or public holiday, they can be make-or-break.
Andy Scott: Yeah, absolutely. Certainly if you look at some of those outlets that you named, the failing rate for those businesses is astronomical. Certainly for those first few years, it can really spin on a die, whether it goes one way or another. It's one of these things, I think, you're never really going to see what the impact is until it's had a chance to wash through the system.
On the one hand, the immediate impact is, jeez, you're going to have employees that are going to be earning less, and if people are earning less that means they're spending less, and that has a negative impact on the economy overall. The flip side, of business owners going, "Well, actually it's going to help drive efficiencies for us, and we're going to be able to deliver better stuff." Consequently, that's actually going to encourage more spending coming in from pay that's being held back at the moment.
It's like all these things, unfortunately, they're... you'll have to wait to see the impact of it to really know what the impact of it was. No matter what that impact is, there'll be statisticians like me, and others, spinning it every which way west of Sunday to say it's good, or it's bad, or it's indifferent. Like I say, with something like that it really comes down to specific individuals within specific industries. Some are undoubtedly going to be impacted negatively by it, some are undoubtedly going to be impacted positively by it as well.
Adam Zuchetti: That'll no doubt feed through to concerns about job security for employees as well.
Andy Scott: Yeah, you'd think so.
Adam Zuchetti: Okay. I think that we've covered pretty much everything, have we, Andy?
Andy Scott: Well, I would never say we've covered everything, but we seem to have covered a lot, Adam.
Adam Zuchetti: We have. Just to sum up, are we in a good place, or not?
Andy Scott: Well, look. You can't deny at the end of the day that the index has gone down 2.11 per cent, so by definition. If you're asking if sentiment... Are we in a good place, well are you happier now than were you then? The answer is, "Well, no, I'm not happier now, right now."
Are we in a good place? No, not necessarily. But the flip side is, we're not in a bad place by any stretch of the imagination. I suspect with things that we've spoken about with seasonal changes and stuff, I suspect we'll see change on this through the next quarter.
Adam Zuchetti: It is an interesting juxtaposition, though. That sentiment has gone down slightly, but hiring intentions are up. Profitability is improving, and business owners are expecting their personal income to improve. That's quite a stark contrast between the two of those things.
Andy Scott: Yeah, absolutely. Part of that is as well, I suppose, comes down to the age-old question that despite... Despite the fact it's apparently a whingeing Pom, you know Australians love to have a whinge at stuff, I think there's an element of that as well, to be fair.
Adam Zuchetti: All right. Well, thanks so much for coming in, Andy, always good to have you.
Andy Scott: Not at all. Adam, I appreciate being your guest again.
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