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Developed by non-bank business lender Shift, the SME Economy Index tracks revenue growth momentum among small and medium-sized enterprises using aggregated data from more than 6,000 Shift customers, dating back to June 2021.
The index uses 50 as its neutral point, with readings above or below that level indicating whether more or fewer small and medium-sized enterprises than usual are growing their revenue. Readings between 49 and 51 are considered consistent with average business activity.
At the latest reading, the index fell to 49.4 in September 2026, dipping below the neutral threshold for the first time since May. The reading was down 0.9 points from August and 2.7 points from a year earlier, when it stood at 52.1.
Jamie Osborn, CEO of Shift, explained why the lender had developed the index.
“SMEs are too important, and too poorly measured, to sit at the margins of the national conversation,” he said.
“The index captures what businesses did, drawn from business data, rather than what they say they expect. We hope it brings the sector into sharper focus.”
Hospitality records sharpest decline
Accommodation and food services recorded the weakest reading of the industries tracked, with its index plunging 10 points in a month to 45.6.
Manufacturing was the strongest-performing industry on the index, with a reading of 50.8, followed by rental, hiring and real estate services at 50.5. These were the only two industries to sit above the neutral threshold in September.
Construction recorded an index reading of 49.6, indicating below-average business activity, despite stronger sales growth.
When measured state by state, all five that were measured posted lower index readings than a year earlier, although the scale of the declines varied.
Western Australia recorded the lowest SME activity reading in September, with its index falling 2.4 points over the month to 47.9.
Victoria also recorded a below-neutral reading of 48.1, down 1.5 points from August and 4.7 points year on year, the largest annual decline of the five states.
NSW was the strongest-performing state, with an index reading of 50.6, up 0.1 points over the month. South Australia remained steady at 50.1, while Queensland fell 0.7 points to 50.0.
Liquidity and sales come under pressure
Average monthly liquidity across Shift’s SME customer base fell 7.3 per cent year on year to $104,000 in September, while average monthly sales declined 2.2 per cent to $323,000.
Liquidity has been declining since peaking at around $131,000 in early 2022, before levelling out at about $100,000 in 2026.
Smaller businesses recorded the sharpest annual decline in liquidity, with average monthly cash reserves falling 13.1 per cent to $29,000. Liquidity among established businesses fell 8.9 per cent to $110,000, while corporate businesses recorded a 7.8 per cent decline to $441,000.
The figures also varied significantly by industry. Average monthly sales in accommodation and food services fell 14.8 per cent year on year to $180,000, while average monthly cash reserves dropped 29.4 per cent to $50,000.
Rental, hiring and real estate services recorded a 38.4 per cent decline in average monthly liquidity to $141,000, alongside a 22.1 per cent fall in sales to $447,000.
However, sales rose in some sectors, including transport, postal and warehousing, up 8.5 per cent year on year to $320,000, and construction, up 7.9 per cent to $373,000.
Interest rates and energy costs weigh on conditions
Commenting on the index, Warren Hogan, managing director of EQ Economics, said the slowdown had come amid “a series of shocks”, including “the reversal of the 2025 interest rate cuts, higher energy costs after war broke out in the Middle East, and weaker established housing markets”.
Other research has also pointed to mounting pressure on businesses.
National Australia Bank’s (NAB) Business Survey, which has tracked confidence and conditions for more than 20 years, found that a “triple threat” of higher interest rates, global uncertainty and elevated fuel and diesel costs had pushed business confidence to near-historic lows.
Cash flow has also come under pressure from Australian Taxation Office debt enforcement and regulatory changes, including Payday Super.
In May, credit bureau CreditorWatch found payment arrears had climbed to their highest level since January 2020.
Business-related personal insolvencies also rose, increasing 14.4 per cent in FY2025–26 to 4,046 cases, according to the Australian Financial Security Authority.
Despite the pressure on businesses, lending has continued to grow, with working capital facilities a key area of focus.
Brokers have also told Broker Daily of growing interest in business loans and a shift in how they approach the sector as clients’ needs and credit requirements change.
A report published by the Australian Banking Association (ABA) found 40 per cent of small and medium-sized businesses sought finance from their bank, while credit provided by banks reached a record $750 billion in April 2026, up from $567 billion in April 2023.
Commonwealth Bank of Australia, Australia New Zealand Banking Group, NAB, and Judo Bank have also reported strong growth in their business lending books.
Competition between bank and non-bank lenders has intensified. The ABA found the margin on small business loans above the cash rate had fallen to a five-year low.
Hogan said the slowdown was uneven, with “smaller businesses bearing the brunt, while corporate businesses have held up”.
“NSW has held up despite house price falls in Sydney and has shown tentative signs of rising momentum. Western Australia’s fall follows three years of strong performance, so it is a large fall from a high base.
“Among industries, manufacturing has been surprisingly resilient, while retail and construction have slowed without a major deterioration.”
SME spending on AI rises
The report also tracked SME spending on AI tools, finding the share of Shift customers paying for OpenAI subscriptions rose to 19.2 per cent in September, up from 2.2 per cent in June 2023.
Anthropic accounted for 9.9 per cent of Shift customers paying for software subscriptions. The median monthly spend among those paying Anthropic was $153, compared with $32 for OpenAI.
[Related: How Payday Super could trigger ‘structural shift’ in SME lending]
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