SYDNEY A measure of Australian business conditions pulled back sharply in February from the three-year highs touched the previous month, though firms surveyed remained relatively upbeat on the outlook for the economy.
National Australia Bank's (NAB.AX) survey of more than 600 firms showed the sharpest reversal came in manufacturing, perhaps no surprise given constant reports of job cutting and closures.
The report's index of business conditions dropped 5 points to stand at 0 in February, with the measure of employment off 6 points at -6. Sales and profits also retreated but remained positive for the month.
The main measure of business confidence fell 2 points to stand at +7, though that was still above its long-run average.
"As expected, the sharp turnaround in manufacturing recorded last month was largely unwound, and is now more consistent with the difficult environment that continues to face Australian manufacturers," said NAB's chief economist, Alan Oster.
"We have long been flagging the jobless nature of the recovery, which is backed up by persistently weak employment conditions in the survey," he added.
The poor showing adds to the risk of a further rise in the unemployment rate, which hit a decade peak of 6 percent in January. Government data on jobs are due on Thursday and analysts expect the jobless rate to hold at 6 percent.
Policy makers have already warned of worse to come. Reserve Bank of Australia Governor Glenn Stevens last week said the unemployment rate could edge higher right through this year, before nudging lower in 2015.
The central bank has been counting on record low interest rates to support demand as a long boom in mining investment cools, and there have been signs of progress.
Recent data showed rising home prices were boosting residential construction and giving consumers the confidence to spend again. The overall economy also finished 2013 with more momentum than first thought, growing 2.8 percent for the year.
Tuesday's survey from NAB did confirm the improvement in construction and showed continued strength in service sectors such as recreation and finance.
However, low capacity utilization pointed to still significant slack in the economy, which in turn kept investment intentions in check.
Inflationary pressures also looked to have eased in February, with growth in input prices and labor costs slowing.
(Reporting by Wayne Cole; Editing by John Mair)