Small business sales continue upward momentum, but Iran war uncertainty lingers

Small business sales continued their upward momentum at the start of the year, but there is uncertainty about whether it can continue amid the economic fallout from the Iran war.

Accounting software firm Xero's Small Business Insights showed average small business sales rose in the March quarter, up 3.9 percent from the same period a year ago.

It followed an identical rise in the December quarter.

"In the March quarter we saw encouraging signs that discretionary spending was returning," Xero country manager Bridget Snelling said.

"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," Snelling said.

The improving sales conditions also meant jobs growth, with Xero recording small business jobs rising 1.1 percent from a year ago, led by agriculture and manufacturing, while wages rose 2.2 percent.

Retail trade sales were up more than 5 percent, while Xero said hospitality recorded its best quarter in nearly three years, up 4 percent from a year ago.

Construction sales rose for the third consecutive quarter, up 4 percent, after two years of consistent losses.

Snelling said the improvement was consistent with the impact of last year's interest rate cuts beginning to flow through to consumer behaviour.

"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 impacts the cost of living in New Zealand," she said.

"Rising fuel prices put pressure on both sides of the ledger - they lift costs for businesses while also weighing on consumer spending."

Snelling said it was "encouraging" to see small businesses in a stronger position to absorb the shocks after five consecutive quarters of improving sales and confidence.

Regionally, there were more signs of the so-called two-speed economy, where the South Island continued to outperform the North.

Xero said Canterbury and Otago led sales growth, up 6.5 and 5.8 percent respectively. The same two regions also led jobs growth, up 4.4 and 2.6 percent respectively.

Auckland and Wellington recorded marginally fewer jobs than a year ago, down 0.7 and 0.5 percent respectively.

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