Australian business conditions weakened in September as retailers and wholesalers suffered from slack demand, while inflationary pressures remained very subdued, adding to the case for further cuts in interest rates.
A monthly survey of around 400 firms by National Australia Bank found firms complaining of a high local dollar, tighter fiscal policy and softer commodity prices.
As a result the survey's main measure of business conditions fell 3 points in September to stand at -3, some way below its long-run average.
In contrast, the index of business confidence rose 3 points to stand at 0, reversing much of the fall seen the previous month. The two measures have been see-sawing for months with no clear trend emerging.
"The pull back in business conditions was led by particularly heavy declines in wholesale, retail and transport & utilities," said NAB chief economist Alan Oster.
"We expect to see one more rate cut in November, provided core inflation remains subdued, with the possibility of another in early 2013," he added.
The Reserve Bank of Australia (RBA) cut interest rates a quarter point to 3.25 percent last week citing a slowdown in China, lower export prices and a high currency among reasons for the move.
Financial markets are pricing in around a two-in-three chance of a cut to 3 percent in November, and further easing to 2.75 percent or lower next year.
The survey's measure of sales dropped 6 points to -3, while that for profitability eased 3 points to -5. Measures of future demand were also weak, with the index of forward orders falling 5 points to -7 in the month.
Employment was a shade softer, led by a pullback in the once red-hot mining sector. Mining giant BHP Billiton on Tuesday said it plans to cut an undisclosed number of jobs in iron ore, its biggest and most profitable business, as it tries to cope with weaker prices and higher costs.
Yet overall mining employment conditions stayed positive, suggesting miners were still hiring but at a slower pace.
Measures of inflation were benign with final product prices rising at the slowest pace since January. Input costs also eased, as did the wage bill.
Official figures for consumer prices are due later in October and are expected to show underlying inflation remained near the floor of the RBA's 2 to 3 percent target band in the third quarter.