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Economic issues

  • Business counts: Just over a month ago, the Bureau of Statistics (ABS) released the annual data on Australian businesses, known as the business counts. The data is timely given the virus crisis, enabling insights into the importance of specific industries to the economy.

The data on business counts assist analysts in understanding the impact of the coronavirus on the economy. 

 

What does it all mean?

  • There are just over 2.38 million businesses in Australia, spread across 500 industries. It may surprise, but Australia’s industry structure is quite fragmented. In fact the industry that has the most businesses is “Non-residential (commercial) property operators” with 136,000 active businesses, representing just 5.8 per cent of the total.
  • To get an idea of the impact of the COVID-19 coronavirus on the economy, it is possible to drill down into the data on Australian businesses, highlighting employment and turnover across geographic regions.
  • The latest data confirms that Australia is very much a nation of small businesses, highlighting the importance of providing the COVID-19 support payments to sole traders and other small businesses.
  • The latest data shows that 93 per cent of businesses had a turnover of less than $2 million. And 62.8 per cent of all businesses were ‘non-employing businesses’, or effectively sole traders. Further, 88.5 per cent of all businesses had less than four employees, including the non-employing businesses.
  • Big business represents just 0.2 per cent of all businesses ranked on job numbers (employing more than 200 people) or 1.6 per cent of businesses when judged on turnover (turnover of $10 million or more).
  • The table shows the 40 biggest industries, judged by the number of businesses.

 

What do the figures show?

 

On turnover the ABS revealed that in 2018/19:

  • 0 per cent of businesses had turnover of less than $50,000;
  • 1 per cent of businesses had turnover of more than $50,000 and less than $200,000;
  • 0 per cent of businesses had turnover of more than $200,000 and less than $2 million;
  • 0 per cent per cent of businesses had turnover of more $2 million

On employment, the ABS revealed that in 2018/19:

  • Non-employing businesses accounted for 62.8 per cent of all businesses;
  • 7 per cent of businesses had 1-4 employees;
  • 9 per cent businesses had 5-19 employees;
  • 4 per cent of businesses had 20-199 employees;
  • 2 per cent of businesses had 200+ employees

Broadly (industry division level) the industries with most businesses are:

  • Construction (394,575 of the 2,375,753 businesses); ahead of
  • Professional, Scientific and Technical Services (294,471); and
  • Rental, Hiring and Real Estate Services (259,290)

Changes in business numbers

  • Over the past year the number of businesses rose by 2.7 per cent, exceeding population growth of around 1.6 per cent. Only Agriculture, Forestry and Fishing recorded a decline in business numbers (down 0.9 per cent), most likely a result of the east coast drought.
  • The biggest gain in business counts or numbers in 2018/19 was by Transport, Postal and Warehousing. Business numbers rose by 13,505 or 7.7 per cent, and accounting for over a fifth of the 62,462 extra businesses.
  • The sector includes delivery and courier services, taxi-type services and warehouses. The ‘new economy’ clearly drove the increase in new businesses.
  • Across States & territories In 2018/19 the ABS said there was a:
  • 2 per cent increase in the number of businesses in the ACT, the largest of any state/territory, with an increase of 1,488 to 30,051 total;
  • 6 per cent increase in the number of businesses in Victoria, with an increase of 22,527 to 640,736 total;
  • 0 per cent increase in the number of businesses in Western Australia, the lowest of any state, with an increase of 2,363 to 232,967 total

Impact of shutdowns

  • The services sector has been significantly affected by shutdowns and reduced customer traffic as a result of the COVID-19 virus crisis. Industries particularly affected are Retail Trade (132,835 businesses); Accommodation and Food Services (95,301); Arts and Recreation Services (29,743); and Other Services (102,053).
  • It is important to recognise that COVID-19 has resulted in signicant variations in demand across Australian industries. Some transport businesses such as Airlines have seen a major reduction in demand. Meanwhile Taxi and Other Road Transport (39,307 businesses), have been negatively affected but Courier Pick-Up and Delivery Services (20,775 businesses) may have seen lift in service demand depending on the type of delivery and region serviced.
  • Similarly, in the retail categories, Cafes & Restaurants (43,582 businesses) have experienced closures of ‘eat in’ services and are only able to offer takeaway services.
  • In contrast some operations in the Takeaway Food Sevices industry class (25,881 businesses) may have seen a boost in demand depending on their location.
  • The industry recording one of the biggest increases in demand has been Supermarket and Grocery Stores (8,940 businesses).
  • Clearly, contained in each of these industries is a significant workforce. While some industries have been forced to lay-off staff or reduce staff numbers, others are actively hiring. The shocks felt by the full-time and part-time staff have significant knock-on effects across the economy.

What is the importance of the economic data?

  • The Australian Bureau of Statistics releases the Counts of Australian Businesses, including Entries and publication each year. The data covers business numbers, survival rates, entries and exits. The data is covered at a broad Australian and state level as well as industry division and industry class level. The data allows people to highlight trends and gauge the economic impacts on industries and regions.

What are the implications for investors?

  • COVID-19 is causing a raft of differing effects across the Australian economy. Most effects are negative as travel is restricted and hospitality and recreation businesses are closed, or their operations are greatly reduced. Delivery services, supermarkets, grocery stores, sporting goods retailers, department stores (computers, freezers) may have seen higher demand in parts of their operations.
  • While the Federal government will be outlaying funds to assist people and businesses affected, the key impact on the economy is the net reduction in employment. While the jobless rate is set to soar in the short term, Federal, State and Territory governments and the Reserve Bank will do everything in their power to ensure this is more of a ‘spike’ rather than extended period of job loss.
  • The ‘whatever it takes’ attitude needs to be backed up over coming months with generous benefit payments to limit the negative effects across the broader economy.
  • Australia has never seen an event like the COVID-19 health emergency. But it is always important to remember that the economy was fundamentally strong going into the crisis. So there is no reason to suspect an ‘L-shaped’ economic downturn. However confidence and the generosity of governments are the key factors.

 

Published by Craig James, Chief Economist, CommSec