Xero Economist Louise Southall said the slowdown in sales growth came because inflation was rising faster than wages, which was cutting the buying power of households.
“This means small businesses are facing the dual challenge of managing rising costs alongside falling purchasing power of their potential customers,” she said.
Ms Southall said that the overall increase in cost of living had seen consumers shifting their spending to address more pressing bills.
Sectors that rely on discretionary spending were worst hit, with education and training growing only 3.4% while arts and recreation increased just 2.4%.
“This can be seen in the sales results for April – particularly in sectors such as arts and recreation and retail. Industries that are not directly affected by discretionary consumer spend, such as professional services, saw a larger sales increase,” Ms Southall said.
The Xero survey found jobs growth failed to track wage growth and remained weak in April, falling 1.1% year-on-year following a 1.3% decline in March.
Small businesses are finding it hard to recruit staff, with Western Australia – which continues to struggle with COVID – seeing the biggest impact.
The Xero Small Business Index is based on aggregated and anonymised transactions from thousands of small businesses using the company’s software. It is created in collaboration with Accenture and is part of the Xero Small Business Insights program.