Small firms on the ropes as RBA rates rise

YOU have to hope the Reserve Bank board's crystal ball is the best in town, with another interest rate rise this week.

YOU have to hope the Reserve Bank board's crystal ball is the best in town, with another interest rate rise this week, because there are growing signs that this remarkable, recession-proof economy is not as healthy as the big end of town thinks.

Making me even more concerned was an admission from a well-placed banker that a rate pause was what he was hoping for on behalf of his small business customers.

And a souring small business sector is not helping the Rudd government's popularity, just when the Prime Minister's policy credibility is being questioned on many fronts.

There are signs that the economy could be wobbling. For starters, the retail figures for January were not from "gangbusters" land.

"January retail sales released today showed only slow growth at 1.2 per cent, which is well below average growth rates for the post-Christmas sales period," says Russell Zimmerman, executive director of the Australian Retailers Association.

"When compared to January 2008, this year there was only a 3 per cent growth in retail sales. This is not something for retailers to celebrate considering year-on-year growth from January 2007 to January 2008 was 6.3 per cent."

Meanwhile, January trade numbers this week showed there was a welcome fall in the deficit by about $1 billion but imports fell by 3.3 per cent to a nine-month low. Imports tend to rise in booms and fall in slowdowns.

Then the latest Sensis Business Index -- a great gauge of small business confidence for over 17 years -- showed rate rises and other pressures were denting the sector's optimism.

"During the quarter, the landscape has generally deteriorated for Australian small businesses," says Christena Singh, who runs the survey.

While conceding the trading environment remains more favourable than 12 months ago, she says that, with less government stimulus, consumer demand fell strongly during the quarter.

But the standout concern was on jobs. "Employment by Australian small businesses fell sharply during the quarter, reaching the lowest level recorded in the 17-year history of the survey," she says.

Symon Brewis-Weston, who heads local business banking at CBA, said on my Sky News Business Channel program that he would have preferred the RBA to have not raised interest rates. He was not running the bank line but merely responding to what he was seeing in his significant book of small business customers.

Not surprisingly, the Sensis survey shows business confidence fell for the first time in four quarters. And small business support for the federal government also dropped, with its approval rating now at the lowest level since November 2008.

www.switzer.com.au/small-business

Peter Switzer appears on Sky News Business Channel