New Xero data shows construction outpacing almost every industry in Australia while consumer facing sectors slowed sharply. On The Good Builder Podcast, Xero economist Louise Southall explained the mechanism behind the gap, and where it stops working.

In the June quarter, Australian small businesses in hospitality grew sales by 2.1 per cent. Retail managed 3.4. Construction came in at 10.8.

That gap is not a rounding difference. It is the clearest read yet on something builders have been describing for the better part of a year without quite being able to name it, which is enquiry that keeps arriving while the coverage says it should have stopped.

Louise Southall is an economist at Xero, working across the Xero Small Business Insights program. It draws on anonymised records from more than half a million Australian small businesses, measuring sales, jobs and wages rather than sentiment. She joined The Good Builder Podcast to talk through what the latest quarter shows.

“Construction was once again one of the better performing sectors in the June quarter,” Southall said. “Sales were up over 10 per cent compared to a year ago. The sector’s employing more than 5 per cent more people than it was a year ago. Wages are up, they’re about 3 per cent. Not too low, not too high.”

The explanation for why that held while household spending did not has less to do with confidence than with calendars.

What the June Quarter Actually Showed

The Xero Small Business Insights data, published on 30 July, shows national small business sales grew 6.5 per cent year on year in the June quarter. That is down from 7.9 per cent in the March quarter and sits just below the long run average for the series.

The slowdown was not evenly spread across the quarter.

Sales rose 10.7 per cent in April, then fell away to 4.0 per cent in May and 4.8 per cent in June. Three interest rate rises this year and elevated fuel prices flowing from the conflict in the Middle East appear to have landed in the back half of the period.

The industries that absorbed most of that were the ones tied to discretionary household spending. Hospitality at 2.1 per cent. Retail trade at 3.4. Arts and recreation at 3.5. Real estate services at 4.7.

Construction sat at 10.8 per cent, behind only mining at 14.0 and utilities at 13.1.

The jobs numbers followed the same shape. National small business employment grew 3.0 per cent year on year. Construction grew 5.7 per cent, close to double the national result and third across all industries. Hospitality was the only sector employing fewer people than a year earlier, down 0.9 per cent.

Construction also recorded the largest wage rises of any industry, at 3.1 per cent.

Payment times improved on both measures, though Xero cautions that June figures benefit from end of financial year effects and are usually revised. Small businesses waited an average of 22.9 days to be paid, down from 24.2 days in the March quarter, and were paid 6.0 days late, down from 6.9.

Southall was clear that those payment metrics carry more weight in this industry than in most.

“There’s a few features about construction that make cash flow management really important,” she said. “Unlike if you go into a retail shop, where the transaction happens straight away, in construction you’ve got a long delay, particularly in something like home building, between when the customer signs up, as you do the work, and when the work’s finally paid. Construction is a sector where really understanding your numbers is so important.”

Why the Sector Is Cushioned

The divergence between construction and the consumer facing sectors comes down to how far in advance the demand was committed.

“For construction, often you’ve made the decision six, twelve months ago that you’re going to build a new home. And even if you’re making the decision now, you’re making that decision based on how you think your finances and your situation are going to be for the next at least ten or twenty years, not how things are going to be in the next six to twelve months.”
LOUISE SOUTHALL, ECONOMIST, XERO

Set that against the decisions driving hospitality and retail.

“People are saying, well, look, I’m just not going to go get the takeaway this week, or we won’t go out, or we’re not going to go to the movies or something,” Southall said. “That’s an easy decision to delay or not make.”

A build is not. By the time a rate rise is announced, the contract is signed, the finance is approved and the slab is booked.

That lag is why construction reads as strong in a quarter where household budgets visibly tightened. It is also why the sector tends to feel downturns later than the rest of the economy, and why it is often still working through pipeline when other industries have already turned.

Southall described this as cushioning rather than immunity. Construction is still exposed. It absorbs the hit on a different timeline.

The Number That Carries the Most Information

A headline sales figure in an inflationary period is doing two jobs at once. Some of the growth is more work. Some of it is the same work at a higher price. Southall separated the two without being pushed on it.

“Some of the sales growth will be because prices have been going up. We’ve seen that in some of the ABS data, so it isn’t all demand,” she said. “But I’m more positive about the demand story because of the jobs results.”

The logic holds. A business charging more for the same volume does not need 5.7 per cent more people to deliver it. Hiring at that rate, in a market where skilled labour is scarce and expensive, is a commitment made against expected work rather than against current invoices.

Wages growing 3.1 per cent sits in the same reading. Southall put that figure around the long term average, which describes a labour market that is tight without being disorderly.

It also lines up with the previous release, in which construction recorded the second highest productivity growth of any industry in the six months to March. A sector adding people and lifting output per hour at the same time is adding capacity, not just cost.

What Else Is Holding the Pipeline Up

Beyond the decision lag, Southall pointed to three sources of work sitting underneath the numbers.

The first is policy.

“The sector’s benefiting from a widespread view across all governments that we need to improve housing supply,” she said. “So you’ve got some policy levers that are moving in that direction, which is helping.”

The second is work with nothing to do with housing at all.

“Construction isn’t just about building new homes, it’s also about building for businesses. So new factories, warehouses, those sorts of things. And we’re seeing that particularly around data centres, there’s a lot of activity around there.”

The third is public sector construction. Southall pointed to the Olympics pipeline in Queensland and to the volume of tunnelling under Sydney for new metro lines.

Queensland recorded the second strongest sales growth of any state or territory at 8.2 per cent, behind the Northern Territory at 8.4. Xero attributes the Queensland result largely to mining. Southall’s broader point on state performance was that industry mix, rather than any difference in effort between states, explains most of the variation.

The Multiplier, and What It Looks Like When It Stops

Southall made a point that rarely surfaces in coverage of the sector.

“When you’ve built that home, what do you put in that home? You need new floor coverings, you need new window coverings, you need often new furniture, new white goods. Economists call it kind of a multiplier effect, but it has really good linkages through the rest of the economy.”
LOUISE SOUTHALL, ECONOMIST, XERO

The clearest illustration sits across the Tasman.

“You only have to look across the Tasman at New Zealand. Their construction sector has been having a much harder time,” Southall said. “It’s been a little bit better in the last three to six months, but before that, construction was really struggling in New Zealand. And you could see that showing up in other parts of the economy as well.”

The most recent New Zealand figures show construction sales up 11.0 per cent, though Xero notes that result is flattered by comparison with a very weak June quarter in 2025.

“So we should be celebrating,” she said. “Even businesses that are not in construction should be celebrating that this sector’s doing pretty well right now.”

The Headwind

Against all of that sits one constraint.

“If I think about all the tailwinds that are for the sector, the main headwind I would see is skills,” Southall said. “Whether or not we have enough skilled people to be able to deliver all of these projects.”

That is the tension the June quarter data sets up. Sales at 10.8 per cent and employment at 5.7 per cent describe a sector converting demand into capacity faster than most. Whether it can keep doing that is a workforce question rather than a demand one.

A Caveat Worth Holding Onto

The figures are aggregated. They describe an average business, and Southall raised the limits of that without being asked, which is worth noting in itself.

“This is aggregated data, so what we’re measuring is sort of the average business,” she said. “There will be listeners out there who are doing better than the numbers that I’m sharing, and then there will be others who are saying, actually, I’m finding it more difficult than that.”

The point matters more in construction than in most industries, because the aggregate covers commercial fitout, civil work, mining services and residential building across every state and territory.

A builder whose enquiry has gone quiet is not misreading their own business. They are sitting on one side of an average that contains a very wide spread.

The data says the sector is holding up. It does not say every business inside it is.

The Delay Runs Both Ways

What the June quarter figures change is the explanation, not the mood.

For the better part of two years, builders reporting steady enquiry against relentlessly negative coverage have had no clean way to reconcile the two. The answer turns out to be structural rather than psychological. Construction runs on decisions made six to twelve months back and measured against a twenty year horizon, which means the sector reads the economy on a delay.

That delay is currently working in the industry’s favour.

It will not always. The rate rises and fuel costs that flattened hospitality in May and June have not finished moving through the system. They reach construction the way they always do, through finance approvals, through deferred starts, through the enquiry that comes in and then quietly goes nowhere.

A full pipeline today is a record of decisions made last year. It is not a forecast.

The full conversation with Louise Southall is available on The Good Builder Podcast.

Frequently asked questions

This article contains general information only. It is not financial, legal or taxation guidance, and it does not take account of any individual business circumstances. Figures are drawn from Xero Small Business Insights data for the June quarter 2026, published 30 July 2026, and are accurate as at the date of publication.

Author: TGB Editorial