The August ACCI Small Business Survey shows the Small Business Conditions index deteriorated from 50.1 to 47.4 over the June quarter almost three points below the important 50 level.

The survey also underscores uneven economic recovery, with significant divergence in business conditions experienced by small and larger enterprises.  

The small business indicators for Business Conditions, Sales Revenue, Selling Prices, Profit Growth, Employment, Overtime Utilisation and Investment in Plant and Equipment all fell and remained at contractionary levels over the quarter while growing for larger businesses.

The divergence between small and large businesses is at a record high for the indexes of Business Conditions, Sales Revenue and Profit Growth.

The Survey also found that:

• the optimistic expectations of small businesses about Australia's economic growth over the next twelve months are receding, with the index of Expected Economic Performance falling from 57.8 to 53.0 over the June quarter; and
• small business expects business investment to continue to be weak, with the Investment in Building and Structures and Plant and Equipment indicators remaining negative over the next three months.

Insufficient Demand has also overtaken Business Taxes and Government Charges as the Number 1 constraint on small business investment over the June quarter, for the first time since the series began in November 2001.

Mr Greg Evans, Director of Economics & Industry Policy, Australian Chamber of Commerce and Industry, commented:

"Small business sentiment and operating conditions have shifted downwards amidst increasing uncertainty about the strength of global recovery and the official interest rate hikes during the quarter. This survey also provides clear evidence that small business performance in general is still lagging behind larger counterparts. We are not only seeing the characteristics of a two-speed economy but a concerning gap opening up between the outlook for small and large business.

"Continued weakness in sales and selling prices, coupled with the rising cost of labour and finance, has put significant downward pressure on small business profitability and limiting small business expansion and investment. The survey also highlights that the rebalancing of growth driven by the private sector is yet to materialise. This provides a strong case for the Reserve Bank to stay on the side lines for the rest of 2010.

"Looking ahead it also highlights the need for meaningful taxation reform which restores greater incentive and reward for risk-taking especially for small business operators."

The survey assessed business conditions and business confidence amongst 1,505 small businesses around the country over the April, May and June period.

A full copy of the Survey is available on the ACCI website at http://www.acci.asn.au/SurveySBS.htm