Business confidence among small and medium businesses (SMEs) has almost halved over the last three months to be the lowest on record, according to the Sensis® Business Index released today.

The survey provides the latest snapshot of SME (up to 199 employees) activity in Australia, with 1,800 SMEs from metropolitan and regional areas interviewed between 6 – 26 November 2008.

Report author Ms Christena Singh said business confidence had plummeted on the back of record low business performance and continued weakening economic conditions.

“Until small businesses see the registers beginning to ring again, they are likely to remain pessimistic about their business prospects.

“And this will continue to impact employment and capital expenditure spending,” Ms Singh said.

Business confidence is less than one-third of the level recorded at the same time last year, and the business confidence indicator has fallen 12 percentage points over the last three months to 13 per cent.

“We have seen substantial falls in business confidence across all states and territories over the last three months.

“Business confidence weakened significantly in the power resource states and territories, with Western Australia notably impacted,” she explained.

Business confidence in New South Wales is the lowest in the nation at five per cent, while Tasmania has the highest level at 37 per cent. Western Australia experienced the biggest fall, down 29 percentage points to 14 per cent.

Ms Singh said businesses were not optimistic about the economic climate or business trading conditions over the next 12 months.

“Despite recent interest rate reductions, falling petrol prices and the announcement of a government stimulus package, the majority of businesses expect the economy will be worse off in the next 12 months.”

Almost half of businesses believe the economy will be worse off in 12 months time, while only 14 per cent believe it will better, with the remaining undecided.

“Weak consumer demand is the biggest concern for business, with about half of businesses experiencing a fall in sales over the last three months,” Ms Singh noted.

Demand for goods and services has deteriorated substantially, with the sales indicator now at the lowest level on record. She noted most businesses were not expecting sales to pick up in the lead up to Christmas or over the next 12 months.

“Retail trade is the only sector to record an increase in confidence. It will be hoping consumers will spend extra cash from reductions in interest rates and the Government’s economic stimulus package in the lead up to Christmas.”

The Sensis® Business Index shows lack of work has translated to falling profits for Australia’s small businesses.

“The profitability Index has only been as low once before, in November 2000,” Ms Singh said.

About half of small businesses experienced a decrease in profit during the last three months, while less than a quarter experienced an increase.

“The current climate has also seen a massive cut back in capital expenditure by small businesses,” she commented.

Approximately one third of businesses reduced capital expenditure during the quarter, while less than 20 per cent increased the amount they spent.

“We have never seen capital investment by small businesses so weak, and the indications are this is likely to get worse in the foreseeable future,” she continued.

After a prolonged period struggling to find staff, the report shows small businesses are now beginning to reduce staff numbers.

Over the last three months, 16 per cent of businesses reduced employment, and the majority of these did so because of weak business and economic conditions. By comparison, only 12 per cent increased the size of their workforce.

Despite the weak economic conditions, support for the Federal Government has seen solid improvement, following one of the lowest levels of approval on record last quarter.

Small business support for the Federal Government rose 15 percentage points, taking the indicator to negative 13 per cent. By comparison, the indicator was positive 29 per cent this time last year, before the change of government.

The main reasons for support are beliefs the Government is:

• Trying to help small business;
• Getting the economy going;
• More interested in/supportive of small business; and
• Providing an economic stimulus package.

About the Sensis® Business Index The Sensis® Business Index is a quarterly survey of the small and medium enterprise (SME) market. The survey has been conducted quarterly since 1993. It is one of the most extensive and regular surveys of Australian small business.

All percentages are net balance, which represents the total number of positive responses minus the number of negative responses. All results are based on the responses of SMEs surveyed for the August 08 Sensis® Business Index. The Sensis® Business Index (formerly known as the Yellow Pages® Business Index) has been produced quarterly since 1993.

About Sensis

Sensis is Telstra's advertising business and Australia's leading directories information resource, helping Australians find, buy and sell. Sensis delivers innovative and integrated local search and digital marketing solutions via print, online, voice and mobile channels to connect Australians 24 hours a day, seven days a week. Sensis' powerful, multi-channel portfolio provides an unparalleled local information source incorporating the White Pages® and Yellow Pages® directories; the MediaSmart digital advertising business; the Whereis® digital mapping business; the Citysearch® entertainment and lifestyle website; the sensis.com.au search engine; the 1234 operator-assisted, premium voice information service; and the accommodation website gostay.com.au. Sensis is also a partner in some of China's most popular websites including real estate and home furnishings website, SouFun.com; auto websites Autohome.com and Che168.com; and digital devices websites IT168.com and PCPop.com.cn.