Xero economist Louise Southall says small businesses are “thinking carefully” before hiring as rate rises and fuel costs bite.
Key insights: New Xero Small Business Insights data shows Australian small business sales growth eased to 6.5 per cent year-on-year in the June quarter, down from a two-year high of 7.9 per cent in Q1. Hospitality, retail and arts and recreation recorded the weakest growth, while mining, utilities and construction outperformed.
Australian small business momentum lost some steam in the June quarter, with new data from Xero showing the effects of higher interest rates and rising fuel prices starting to filter through the economy.
According to the latest Xero Small Business Insights data, small business sales growth eased to 6.5 per cent year-on-year in the June quarter, a step down from the two-year high of 7.9 per cent recorded in the first quarter of 2026, and also below the series’ historical average.
The slowdown wasn’t a straight line. Sales rose 10.7 per cent year-on-year in April, then dropped sharply to 4.0 per cent in May before recovering slightly to 4.8 per cent in June.
Xero economist Louise Southall said the quarter marked a shift toward a more uncertain second half of the year.
“After a strong start to the year, pressure started to show in the small business economy in the June quarter. Consecutive interest rate rises and elevated fuel prices have taken the heat out of the economy. Growth is still positive, but those macroeconomic pressures are now weighing on both consumer spending and business confidence,” Southall said.
She said the pressure isn’t likely to ease soon.
“Looking ahead, wider economic forecasts line up with what we’re seeing: ongoing global uncertainty and the situation in the Middle East are likely to keep weighing on small business sales and hiring for the rest of the year. For small business owners, it’s more important than ever that they stay close to their numbers.”
A two-speed economy
The slowdown hasn’t hit every industry the same way. Hospitality (2.1 per cent), retail (3.4 per cent) and arts and recreation (3.5 per cent) recorded the weakest sales growth of the quarter, all sectors heavily exposed to discretionary household spending. Mining (14.0 per cent), utilities (13.1 per cent) and construction (10.8 per cent) kept growing at a much faster clip.
Southall described it as a split-speed economy. “We’re seeing a two-speed economy. Businesses exposed to discretionary consumer spending recorded the sharpest slowdowns in sales growth between the March and June quarters, as tighter household budgets impact small business sales. Mining, utilities and construction are far less impacted, with continued outperformance likely driven by price impacts alongside genuine demand.”
Hiring slows down
Hiring patterns are shifting too. Jobs growth slowed to 3.0 per cent year-on-year for the quarter, down from 3.3 per cent in Q1, with June logging the weakest monthly result of the year at just 2.0 per cent. Wage growth also stayed subdued, up 2.4 per cent year-on-year compared to 2.7 per cent the previous quarter.
Southall said hiring is often the first thing owners pull back on when conditions get shaky.
“Hiring is often one of the first decisions small business owners delay when uncertainty rises. Jobs are still growing, but the softer June quarter result suggests businesses are thinking carefully before adding to headcount.”
On payments, small businesses were paid faster this quarter, waiting an average of 22.9 days, with late payments improving to 6.0 days. Xero noted these gains largely reflect typical end-of-financial-year payment patterns rather than a lasting shift.
Winners and laggards by state
The Northern Territory, being reported in Xero’s data for the first time, recorded the strongest sales growth nationally at 8.4 per cent, narrowly ahead of Queensland at 8.2 per cent, which benefited from continued strength in construction and mining. The ACT recorded the slowest growth of any state or territory, at 3.4 per cent.
The slowdown isn’t unique to Australia. Similar easing showed up across other developed economies over the same quarter, with the UK at 3.6 per cent and the US at 4.0 per cent. New Zealand bucked the trend, posting the strongest result at 8.6 per cent, driven largely by agriculture.
More detail on how the data is compiled is available in Xero’s methodology.
More detail on how the data is compiled is available in Xero’s methodology.
Lyndia Mote
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