Mining, utilities and construction outperform as hospitality and retail bear the brunt of tighter household budgets and rising operating costs
Australian small business momentum slowed in the June quarter as higher interest rates and elevated fuel prices began to flow through the economy and place additional pressure on operating costs, transport expenses and consumer demand, according to new Xero Small Business Insights (XSBI) data.
Following a strong start to the year, small business sales growth eased slightly to 6.5% year-on-year (y/y) in Q2 2026, down from a two-year high in Q1 (+7.9% y/y) and below the historical average for the series (+7.9% y/y).
The results point to a more challenging operating environment for small businesses across Australian supply chains, particularly those exposed to discretionary spending, fuel costs and changing demand patterns.
June quarter at a glance
Sales were strongest in April, rising 10.7% y/y, before slowing sharply to 4.0% y/y in May and 4.8% y/y in June.
Discretionary industries recorded some of the weakest sales growth, including hospitality (+2.1% y/y), retail (+3.4% y/y) and arts and recreation (+3.5% y/y).
Mining (+14.0% y/y), utilities (+13.1% y/y) and construction (+10.8% y/y) continued to outperform other industries.
The Northern Territory (+8.4% y/y) and Queensland (+8.2% y/y) led state and territory sales growth, while the ACT recorded the slowest growth at 3.4% y/y.
Jobs growth slowed slightly to 3.0% y/y, down from a 3.3% increase in Q1, with June recording the weakest monthly result of the year at +2.0% y/y.
Wage growth remained subdued, rising 2.4% y/y, compared with a 2.7% y/y increase in the previous quarter.
Small businesses were paid faster, waiting an average of 22.9 days for payment, while late payments improved to 6.0 days. However, these improvements largely followed typical end-of-financial-year payment patterns.
Louise Southall, Economist at Xero, said the June quarter reflected an economy shifting towards a more uncertain second half, with implications for small businesses managing cash flow, staffing and supply chain costs.
“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.
“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.”
For businesses operating across transport, logistics, retail and construction supply chains, the combination of softer demand and higher fuel costs may also place greater pressure on margins, inventory decisions and workforce planning.
Mining, utilities and construction outperform discretionary industries
Mining (+14.0% y/y), utilities (+13.1% y/y) and construction (+10.8% y/y) were standout industry performers, while hospitality (+2.1% y/y), retail (+3.4% y/y) and arts and recreation (+3.5% y/y) saw the slowest sales growth.
The contrast highlights uneven demand across the economy, with resource-intensive and infrastructure-related sectors continuing to support activity across freight, materials and industrial supply networks, while consumer-facing industries face weaker spending conditions.
Southall said: “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.”
For retail and hospitality businesses, weaker consumer demand can have flow-on effects for purchasing, inventory turnover and supplier orders, while stronger performance in mining and construction may continue to support demand for equipment, materials, transport and specialist services.
Businesses more cautious about hiring
While sales continued to grow, the data suggests small business owners are taking a more measured approach to expanding their workforce. Jobs growth eased to a 3.0% y/y increase during the quarter, with June recording the weakest monthly employment growth of the year at 2.0% y/y.
“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,” Southall said.
A slowdown in hiring may be particularly significant for supply chain businesses already managing skills shortages across transport, warehousing, construction and technical roles. Reduced workforce growth can limit operational capacity and make it more difficult for businesses to respond quickly when demand strengthens.
Northern Territory and Queensland lead state and territory performance
The Northern Territory, which is being reported in XSBI for the first time, recorded the strongest sales growth nationally at 8.4% y/y.
Queensland followed closely at 8.2% y/y, supported by continued strength in high-performing sectors such as construction and mining, while the ACT recorded the slowest growth at 3.4% y/y.
The stronger results in the Northern Territory and Queensland are likely to support activity across regional supply chains connected to resources, infrastructure, freight and construction, although businesses in these markets may remain exposed to fuel, labour and transport costs.
Australia’s slowdown reflects global trends
Australia’s moderation in growth mirrors trends seen across other developed economies.
While New Zealand recorded the strongest June quarter performance at 8.6% y/y sales growth, largely driven by agriculture, Australia (6.5% y/y), the UK (3.6% y/y) and the US (4.0% y/y) all experienced similar easing in momentum as higher interest rates and global uncertainty weighed on business activity.
For Australian supply chain businesses, these international conditions may add further uncertainty around demand, input costs, freight movements and investment decisions during the second half of the year.
Read also: From checkout to delivery: How eCommerce growth is reshaping Australia’s supply chains
