‘It feels like we’re on a perpetual trampoline’: Gloom descends on businesses

More than one in five NSW businesses plan to shed staff in coming months as rising interest rates and higher costs sap business confidence ahead of this month’s state election.

Housing affordability has also emerged as a major challenge for businesses across the state, with a survey by peak body, Business NSW, showing one third of firms identify the high cost of housing near their operations as the biggest barrier to hiring workers.

Peter Morris, owner of Axis Toys and Gifts, says the “threshold of spending” by customers is getting smaller as interest rates rise.Credit: Steven Siewert

The poll, conducted mostly after last month’s increase in official interest rates, found business confidence in the state is near historic lows.

Belrose businessman Peter Morris, owner of wholesale distribution business Axis Toys and Gifts, said “every single rate rise” is having a noticeable effect on demand for the toys and gifts he sells.

“We’re seeing the threshold of spending getting smaller,” he said. “So instead of a $50 purchase we’re getting a $30 purchase, and instead of people getting two presents for their kids they’re getting one.

“People are just not spending to the same extent as what they were previously.”

The small business, which has six employees, has also faced rising costs, especially for shipping. However, Morris has no plans to reduce staff numbers.

“There has been such a swing in fortunes ever since COVID began. It feels like we’re on a perpetual trampoline, and you don’t know which way it’s going to bounce,” Morris said. “When you add the rate rise factor it just increases the uncertainty. Small businesses are being badly affected.”

The Reserve Bank has hiked the official cash rate nine times since May to a decade high of 3.35 per cent, and further increases are expected.

Separate figures released by the Bureau of Statistics on Wednesday showed State Final Demand, a key measure of spending across NSW, fell 0.1 per cent during the last quarter, suggesting the economy is losing momentum as households and businesses adjust to higher interest rates.

Business confidence waning: More than one in five NSW firms plan to shed staff in coming months.Credit: Peter Rae

Business NSW chief executive Daniel Hunter said businesses have been hit by a “perfect storm” of interest rate rises, softening demand, energy price increases and supply chain problems.

“Post-COVID we should be making up for lost time, our businesses should be expanding and enjoying some growth, but instead they are battening down the hatches and going into hibernation,” he said.

The Business NSW survey found 22 per cent of firms intended to cut staff in the next three months, 60 per cent plan to maintain the same headcount, and 19 per cent look to bring people on.

“Normally in a good economic cycle we see a lot of businesses wanting to expand,” said Hunter.

The cost of housing has emerged as a key constraint on businesses with 35 per cent of survey respondents saying housing affordability in nearby areas was an obstacle to accessing staff with appropriate skills.

Hunter said this is a problem in Sydney as well as some NSW regional areas.

“It is a real barrier for a lot of businesses – if people can’t afford to live close to their employer they don’t take the job,” he said.

The survey’s Business Confidence Index was negative for the sixth straight quarter.

“Pessimists clearly outnumber optimists regarding the NSW economic outlook,” the report said.

The survey of 1260 firms, conducted during the prelude to the March 25 state election, found eight in ten respondents feel politicians in NSW “are not taking steps” to address the needs of business.

Hunter said both major political parties should consider ways to reduce business costs, including the rate of payroll tax.

“That’s a key lever that government has to ease the cost of doing business,” he said.

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