Businesses cutting back workers’ hours as economy slows: Westpac

Businesses have been slashing employees’ work hours to trim their expenses and stay afloat as high interest rates and inflation dampen consumer spending.

Discretionary sectors, where demand has declined most due to the cost-of-living pressures on household budgets, saw some of the biggest reductions in labour costs, but most industries cut their expenses in the last quarter, Westpac’s latest bank transactions data shows.

“Things are definitely slowing down, with turnover down 3 per cent in the last quarter,” said Westpac’s head of business and wealth, Anthony Miller. “But business expenses were down 4 per cent, so they’re in an okay position cashflow wise. For certain sectors in particular, there’s just been a little less labour required.”

Westpac chief executive of business and wealth Anthony Miller said global uncertainty and geopolitical challenges were the biggest risks for the year ahead.
Westpac chief executive of business and wealth Anthony Miller said global uncertainty and geopolitical challenges were the biggest risks for the year ahead.Credit: Dion Georgopoulos

The bank’s findings underline data from the Australian Bureau of Statistics, which showed hours worked declined by 0.4 per cent in the December quarter and that underemployment – a measure of people who are in work but want more work – ticked up 0.4 percentage points in the past year.

Despite expectations from the Reserve Bank that the rates of unemployment and underemployment will increase further, Miller said it wasn’t something to be too concerned about.

“People are still busy, we have a very high level of employment, and there’s a lot of people therefore with the capacity to spend, so the overall macro position is still positive,” he said.

Miller said business expenses were also easing as the costs for non-labour inputs continued to cool on the back of improved supply chains and lower costs for producing and shipping goods.

In the December quarter, business expenses declined to their lowest level since the March quarter of 2022, according to Westpac, with cost increases expected to slow further as inflation eases.

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Miller said companies had also paid down debt where possible, reducing their debt servicing costs and helping all industries except property, education and construction to improve cash flows in the December quarter.

Small-to-medium-sized enterprises (SMEs) – which tend to be more sensitive to economic cycles than big commercial businesses – saw a fall in revenues from early 2022 at the same time as costs were rising, Miller said, but conditions had since stabilised for SMEs, and remained stable for larger businesses throughout 2023.

Looking ahead, the economy overall and company revenues will slow further as the RBA continues to battle inflation, the Westpac report predicts. However, the bank said there would be a recovery in household demand later in the year amid tax cuts and a possible interest rate cut.

Miller said the biggest risks for Australian businesses were global uncertainty and geopolitical challenges, but the bank was mostly optimistic about the year ahead.

“I think some of those bigger political issues are a worry in terms of how they might play out and impact business conditions here in Australia,” he said.

“You might see more disruption in supply chains, or impact on oil prices, which brings about another risk of an inflationary surge. But other than that, Australian businesses are reasonably positive about the opportunities over the next 12 to 24 months.”

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