St.George - ACCI SMALL BUSINESS SURVEY August 2007

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1 Release Date: 21 August 2007 St.George - ACCI SMALL BUSINESS SURVEY August 2007 Identifying National Trends and Conditions for the Sector Working in Partnershi for the future of Australian Business St.George - ACCI Business Exectations Survey, Setember Quarter 2005.

2 Summary The St.George - ACCI Index of Conditions imroved to 56.1 in the June quarter, from 54.7 in the March quarter. business conditions have imroved over the quarter with the index at a very satisfactory level. Exectations indicate further imrovements in business conditions are likely to occur in the Setember quarter. Australian economic erformance is exected to accelerate over the next twelve months. Sales revenue rose marginally over the June quarter to a near record high. Exectations are highly otimistic, reflecting confidence in rolonged favourable trading conditions. Providing evidence for an extremely tight labour market, emloyment growth and overtime utilisation strengthened further over the June quarter to be at all time highs and exectations showed continuing growth over the next quarter. As a direct result of a tight labour market, wage and non-wage labour costs rose strongly over the June quarter with both indices at record high levels since the survey began in Price growth increased over the quarter to be at near record levels. All small business indicators for the June quarter are above their resective five-year averages but are below their large counterarts. Furthermore, all small business indicators for the June quarter rose, roviding a comelling case for a vigorous economy. Conditions Conditions Trend Seasonally Adjusted St.George and ACCI St.George and ACCI share a strong desire to foster the success of businesses in Australia. Together we aim to look after the future of your business by bringing the national and industry-secific information that you need to thrive in a raidly changing environment. Working in Partnershi for the future of Australian Business 2 St.George - ACCI Survey, August 2007.

3 Results at a Glance 5 Year Average June 2006 Mar 2007 June 2007 Quarterly Move Set 2007 (e) Conditions Australian Economic Performance (a) Sales Revenue Wage Growth Non-Wage Labour Costs Selling Prices Profit Growth Emloyment Overtime Utilisation Investment in Buildings and Structures Investment in Plant and Equiment Notes: Throughout this survey, index values are in trend terms including five-year averages. The full data set is available from (a) Exectation for following twelve-months, (e) exectation for next quarter. An index level of indicates that there is an exact balance between those who resonded that the variable is growing and those who relied that the variable had declined. Thus, any level below can generally be interreted as meaning that the variable is falling, and conversely, a reading above indicates the variable is increasing. About the Survey The Survey is a national survey aggregated from the surveys conducted by member associations of the Australian Chamber of Commerce and Industry (ACCI). These surveys cover small businesses in every state and in every industry. The survey asks firms to indicate how their business has erformed over the ast 3 months, relative to the revious 3 months, according to 11 different measures, namely Business Conditions, Sales/Revenue, Wages, Non-Wage Labour Costs, Selling Prices, Profits, Emloyment, Overtime, Caital Exenditure - Buildings and Caital Exenditure - Plant and Equiment. In addition, firms are asked how they believe their business will erform over the next 3 months comared with the ast 3 months. This gives rise to the exectations indices. Finally, businesses are asked what their exectations are for the erformance of the Australian economy over the next 12 months in comarison with the ast 12 months. This rovides a reading on the strength of growth in the domestic economy. A number of the survey resonses are segmented by size of business, with large firms categorised as having 100 or more emloyees, medium having and small as having The data in this survey covers the eriod Aril, May and. There were 1,292 resondents to the survey. Working in Partnershi for the future of Australian Business St.George - ACCI Survey, August 2007.

4 Survey Data Conditions business conditions rose to 56.1 from 54.7 over the June quarter. The index is comfortably higher than its five-year average of Exectations for the Setember quarter remained robust, signalling continued imrovement of trading conditions over the next quarter. businesses rated their conditions lower than both medium and large businesses. Large businesses reorted that they had the biggest imrovement to their business conditions over the June quarter Set 2007 (e) Australian Economic Performance business is execting growth over the next twelve months to be significantly higher comared with the ast twelve months. The index of Australian economic erformance increased from.7 to 54.6 over the June quarter. The index is considerably higher than its five-year average of All three business size grous exect an imrovement in the rate of economic growth. The magnitude of the increase is relatively uniform across the three size grous, with small business remaining the most ositive. Mar 2006 (a) (a) (a) Exectation for following 12 months. Working in Partnershi for the future of Australian Business 4 St.George - ACCI Survey, August 2007.

5 Survey Data Sales Revenue business sales revenue increased slightly over the June quarter from 58.3 to The index is considerably higher than its five-year average of.8. The sales revenue index stands at only marginally less than the all time eak of 59.0, reached on two searate occasions Strong exectations for the Setember quarter suggests that small business anticiates favourable business conditions will translate into further sales revenue growth. All three business sizes had ositive results. Large business had the strongest increase while small business had the weakest increase Set 2007 (e) Wage Growth Wage growth continued to accelerate over the quarter with the index rising to a new all time high. The index rose from 68.6 to 69.1 over the June quarter. The index is well above its five-year average of Increases in exectations are suggestive of further strong growth through the Setember quarter. Medium and large businesses both exerienced moderation in wage ressures, while the oosite was true for small business Set 2007 (e) Working in Partnershi for the future of Australian Business 5 St.George - ACCI Survey, August 2007.

6 Survey Data Non-Wage Labour Costs Non-wage labour costs rose in line with wages over the June quarter with the index rising from 67.4 to This index is also at an all time high. The series remains well above the five-year average of Exectations moderated over the quarter, however business still anticiates well above average growth in non-wage labour costs. Exectation index for non-wage labour costs is the only index in this survey to fall for small business. Non-wage cost growth was highest for large business with medium business only slightly behind and small business having the least growth. Set 2007 (e) Non-wage labour costs refer to the growth in labour on-costs such as fringe benefits, workers comensation, ayroll tax and training Selling Prices The index of selling rices increased over the quarter from.7 to The index is considerably higher than its five-year average of Exectations suggest that the index level may increase moderately over the next quarter. Medium business exerienced a significant dro in the selling rice index, while the index remained relatively steady for large business. Desite the lack of movement, large business retains the highest selling rice growth Set 2007 (e) Working in Partnershi for the future of Australian Business 6 St.George - ACCI Survey, August 2007.

7 Survey Data Profit Growth The index for rofit growth imroved over the June quarter from 48.3 to The index is comfortably above its five-year average of Exectations continue to be ositive and demonstrate that conditions remain conducive for imroved rofits. Large businesses rofit growth is the strongest, while small and medium business are equal in osition Set 2007 (e) Emloyment business emloyment growth continued to be robust with a further imrovement to the index from 54.7 to.1 over the June quarter. Further evidence of a tight labour market is given by the emloyment index, which is at its highest level since the survey began. The index is comfortably above its five-year average of Exectations for the next three months were higher, suggesting that emloyment growth should continue to exand through the Setember quarter. All three business sizes had strong emloyment growth with large business continuing to record the highest growth. Medium business is also at record emloyment since the survey began Set 2007 (e) Working in Partnershi for the future of Australian Business 7 St.George - ACCI Survey, August 2007.

8 Survey Data Overtime Utilisation The use of overtime within small business increased over the June quarter with the index of overtime utilisation u to 54.2 from The index is considerably above its five-year average of Exectations indicate that the growth in overtime utilisation may ease over the next quarter All three business sizes made more use of overtime over the June quarter. Medium business made the most use of overtime, well ahead of small and large business Set 2007 (e) Investment in Buildings and Structures The growth of investment in buildings and structures icked u over the quarter with the small business index recorded at The index rose slightly over the June quarter after being.2 in the March quarter. The index is marginally above its five-year average of.7. business investment should continue at about current rates of growth over the Setember quarter with exectations recorded at aroximately the same level. While both small and large business exerienced increases in investment growth, medium business investment has fallen slightly over the quarter Set 2007 (e) Working in Partnershi for the future of Australian Business 8 St.George - ACCI Survey, August 2007.

9 Survey Data Investment in Plant and Equiment The growth rate for small business investment in lant and equiment strengthened over the quarter. The index rose to 56.9 from.9. The index is comfortably above its five-year average of.5. Exectations for the next quarter are marginally lower, indicating that investment in lant and equiment is steady and will grow comfortably at the current rate. Although investment in lant and equiment increased for all three business sizes, small business still has the lowest growth rate Set 2007 (e) Working in Partnershi for the future of Australian Business 9 St.George - ACCI Survey, August 2007.

10 Constraints on Investment The SAI Global - ACCI Survey of Investor Confidence asks businesses the degree to which twenty factors constrain business investment in lant and equiment. In the most recent survey, the average level of imediments to investment for small business increased significantly from 33.0 to.4. The index is at a five year high. The average level of imediments is the average of all 20 imediments to investment and reflects whether taken as a whole there is a greater or lesser degree of constraint on investment. The higher the average level of imediments, the greater the constraint. To Five Constraints on Investment Figures in brackets show rankings during the last quarter. 1. Availability of Suitably Qualified Emloyees (1) 2. Business Taxes and Government Charges (2) 3. State Government Regulations (4) 4. Wage Costs (3) 5. Charges by Lending Institutions (12) 1. Availability of Suitably Qualified Emloyees (1) 2. Business Taxes and Government Charges (4) 3. Local Cometition (5) 4. Wage Costs (2) 5. State Government Regulations (3) 1. Availability of Suitably Qualified Emloyees (1) 2. Insufficient Demand (10) 3. Wage Costs (4) 4. Federal Government Regulations (7) 5. Local Cometition (6) The availability of suitably qualified emloyees remains the number one constraint for all three business sizes. This result concurs with a myriad of other indicators showing that the labour market is quite tight. As a direct result of the success of the Australian economy and flexible labour market, wage costs has risen to record highs, but aears to now be utting ressure on investment levels. This unmistakably demonstrates the need to encourage skill develoment and workforce articiation by industry and government. Business taxes and government charges was another key barrier to business investment for small and medium business over the June quarter. Overall, government regulation or charges continue to be featured rominently in the to five constraints for all three business grous and shows how significant an imact government is making on investment. Local Cometition increased its imortance as a constraint on investment by business. Larger businesses are finding it increasingly harder to make investment due to fierce cometition in the market. The to five lists shows riority areas that should be addressed to imrove the investment and hence roductivity erformances within each size classification. The mix between skills, and government taxes and regulations in the current survey shows that continuing economic reform is essential. Working in Partnershi for the future of Australian Business 10 St.George - ACCI Survey, August 2007.

11 Contact Listing For further information contact: Director of Industry and Innovation - ACCI Greg Evans greg.evans@acci.asn.au (02) Chief Economist - St.George Bank Steve Ryan ryans@stgeorge.com.au (02) Head of Economic Research - St.George Bank Steven Milch milchs@stgeorge.com.au (02) Particiating Organisations This survey is comiled from data collected through individual surveys conducted by members of the Australian Chamber of Commerce and Industry (ACCI). Particiating organisations and contact details at each organisation are listed below. ACT & Region Chamber of Commerce and Industry Chris Peters AM Ph: (02) NSW Business Chamber Paul Orton Ph: (02) Business SA Rose-Linh Le Ph: (08) Chamber of Commerce & Industry Western Australia John Nicolaou Ph: (08) Chamber of Commerce Northern Territory Clalia Mar (08) Commerce Queensland Paul Bidwell Ph: (07) Printing Industries Association of Australia Hago Tchamkertenian Ph: (02) Tasmanian Chamber of Commerce & Industry Nick Behrens Ph: (03) Victorian Automobile Chamber of Commerce Susie Savage Ph: (03) Victorian Emloyers Chamber of Commerce & Industry Michael Wilson Ph: (03) Technical Note Each survey reading is calculated by taking a weighted sum of the roortion of resonses in each answer grouing to form an index between 100 and 1 (note that answers are groued according to the strength of conditions). The strongest answer grouing is given a weighting of one and the weakest is given a weighting of zero, with those between receiving a roortional weighting. As a result, if all resondents lace their answer in the strongest grouing, the index would be 100. Conversely, if they all oted for the weakest grouing, the index would be 0. If n is the number of resonse categories, ro is the roortion of resonses in a given category (out of 100) and i is the resonse category (ordered from 1 = strongest to n = weakest), then the formula for the index is as follows: n n i Index = ro i. n 1 i=1 The information and data contained in this Survey has been reared by ACCI and is intended for general use only. The oinions and views exressed in this Survey are not reresentative of those of St.George Bank Limited ABN AFS Licence No or any of its related entities ( St.George Grou ). Before making any decision based on the information contained in the Survey, St.George strongly recommends that you seek aroriate rofessional advice. To the extent ermitted by law, the St.George Grou is not liable for any loss or damage sustained by any entity as a result of its reliance on any information contained in this Survey (including, without limitation, by reasons of negligence, negligent misstatment, lack of care, or that such loss or damage was foreseeable). Working in Partnershi for the future of Australian Business 11 St.George - ACCI Survey, August 2007.

12 Working in Partnershi for the future of Australian Business St.George - ACCI Business Exectations Survey, Setember Quarter 2005.