On October 14th, if the Reserve Bank of Australia (RBA) fails to timely reduce the official interest rate in response to the upcoming national retail peak, small businesses in Australia may face difficulties this Christmas.
Even though consumer confidence has risen to a near three-year high in the past month, pessimism still dominates. Since May 2022, with 13 interest rate hikes, the RBA's next rate move may be a cut, which has led to an improvement in consumer confidence. However, a consumer spending survey conducted by MYOB shows that consumers are only willing to increase spending after seeing a rate cut.
The survey points out that 24% of respondents plan to reduce their Christmas spending, and overall retail consumption in the last four months of 2023 has not increased.
If the RBA cuts interest rates before the end of the year, 20% of respondents said they would increase their spending during the holiday season. Financial markets are evenly split on the prospect of a rate cut before Christmas, with expectations that the cash rate will be reduced by 0.25 percentage points in February next year.
MYOB's CEO, Paul Robson, said that small and medium-sized enterprises will face a severe test this Christmas. "Although inflation has eased, ongoing living cost pressures and high interest rates have forced many households to tighten their spending on non-essential goods and services. This has a particularly significant impact on the retail and hospitality industries.""For small businesses, this is a moment filled with challenges. Prioritizing consumption to support local enterprises during the year-end holiday season will have a significant impact on these important employers and contributors to GDP, and help them move towards a stronger 2025."
The survey also found that the importance of early promotional events like Black Friday is growing.
More than half of the respondents plan to complete their Christmas shopping in November, with 53% considering Black Friday as their main shopping date.
According to data from MYOB, the small and medium-sized enterprise sector has seen a slight decline in performance over the past three months, primarily due to a reduction in discretionary spending.
Angela Jackson, Chief Economist at Impact Economics, believes that small businesses are finally poised for a turnaround.
"We anticipate that the retail sector will recover next quarter, driven by consumption tax cuts and easing inflation. However, if there is a rate cut before Christmas, it will undoubtedly accelerate this recovery process."
Research by the independent think tank e61 suggests that low-income individuals constrained by non-compete clauses may face a more challenging Christmas.
The study points out that businesses that use non-compete clauses pay their employees an average salary that is 4% lower than businesses that do not use such clauses, particularly impacting low-income earners. After working for five years in businesses that use these clauses, income is reduced by 10%.
The use of non-compete clauses is becoming more prevalent in low-skill, low-income industries such as retail and fast food.The study also revealed that companies that increased the use of non-compete clauses between 2018 and 2023 saw a 10% reduction in job-switching opportunities for their employees.
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