Australia business confidence fades from highs in October: Survey

SYDNEY (REUTERS) - A measure of Australian business confidence pulled back from 3-1/2 year highs in October as sales and profits stayed subdued, though the survey also hinted at a potential improvement in the sluggish labour market.

National Australia Bank's survey of more than 400 firms showed sentiment has returned to more normal levels after two months of hefty gains.

The report's main measure of business confidence dropped to 5, from 12 in September which had been its highest since March 2010. The index was still 6 points higher than in October last year and in line with its long run average.

The survey's index of business conditions stayed stuck at -4 in October, with sales and profitability lacklustre.

"The pull back in confidence suggests businesses may have reassessed their expectations for the outlook given the continued weakness in actual conditions," said NAB's chief economist, Alan Oster.

Confidence jumped sharply in September after the conservative Liberal National Coalition won government elections, putting an end to political uncertainty.

"Nonetheless, the relatively elevated level of business confidence suggests businesses may still be feeling buoyed by positive housing price trends and low borrowing rates," said Oster.

Home prices, sales and construction have all picked up in recent months as the Reserve Bank of Australia (RBA) cut interest rates to record lows of 2.5 percent.

That improvement helped keep confidence high in the finance/business/property, construction and retail sectors.

Also improving was the survey's index of employment which rose 3 points to a balance of -3 in October, the best reading in a year. That in part reflected a sharp turnaround in mining, with the transport and business sectors also gaining.

Measures of forward orders and inventories swung lower, however, while capacity utilisation fell to a four-year low.

Indicators of inflation stayed subdued, with producer and retail prices growing only modestly, while labour costs continued to soften.

NAB's Oster still thinks the RBA will have to cut interest rates one more time, though perhaps not until May next year.

"It is our view that economic activity will remain soft over coming quarters and current economic optimism will fade, prompting the RBA to lower the cash rate again next year," he said.