Here is the explanation everyone's searching for about why Australian consumer confidence can't rise

Getty/Robert Cianflone

Business conditions for Australia’s SME sector fell for the first time in a year during the December quarter according to the NAB’s SME business survey, dropping from 5 to 2. Overall SME confidence dipped to 1, from 5, in Q3 2014.

Within one subset of SMEs there is a clear negative tone. Smaller players with a $2-3 million turnover had their confidence zapped to -2 and business conditions hit -5.

The key to this survey, however, is that the small business sector, which accounts for three-quarters of employment in the domestic economy, has “soft hiring intentions”.

That’s important because of the place SMEs hold in the economy. As the NAB said “the survey would have wider labour market and economic implications, partly reflected in the upward-trending unemployment rate, weak wages growth and lacklustre domestic demand in Australia at present.”

Thinking behaviourally for a second, there’s a flow-through on mood, because if three-quarters of Australians work in small business, they know that conditions and confidence are under pressure. That in turn informs their own personal and household confidence as well as confidence about retaining a job.

And that also impacts on consumer spending and retail sales.

Think about it.

Small businesses by its nature is more connected with employees. So, if 4.54 million Australians are working in businesses where confidence and conditions are negative, while another 2.7 million are only experiencing “average” conditions, and know their bosses and businesses are doing it tough is it any wonder consumer confidence is only average?

On the upside, the Joe Hockey’s speech this morning hinting that a further stimulus package for SMEs is coming in the May budget is exactly where the Government needs to target stimulus if it wants to get the biggest bang for its scarce bucks.

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