While the bulk of Australian business enjoyed an upbeat festive season, retailers were looking at falling sales and profits.

Key points: Retail prices weakened "sharply" in December along with sales, dragging down profitability

Retail prices weakened "sharply" in December along with sales, dragging down profitability Overall business conditions and confidence well above long-term average

Overall business conditions and confidence well above long-term average Survey finds "official" employment growth is overstated

The respected and influential NAB business survey found retail continued to be the economy's black spot in December — a reputation it has endured for most of the past 18 months.

Overall business conditions remained unchanged at historically high levels, while confidence bounced, reversing much of the weaker sentiment that has been hovering since the middle of year.

However, the weakness across all retail sectors and measures continues to be a major worry, given domestic consumption underpins around 60 per cent of the economy.

All key retail sectors surveyed by NAB — including food, vehicles, personal and household items — reported negative conditions.

Within those sectors, sales, prices and profitability were negative, while employment conditions were "strongly negative".

"Final retail prices also weakened sharply in December into negative territory, and are running at a slower rate than labour costs and purchases costs, pointing to margin compression," NAB observed.

Confidence picking up

Despite the weak conditions, retailers remained in a surprisingly rosy mood, according to the survey.

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"It is not clear what is driving this confidence, but it has been relatively unwavering over the whole of 2017," NAB chief economist Alan Oster noted.

The broader picture is more positive, pointing to a pick-up in overall growth.

"There continue to be a number of significant challenges to the outlook, but we remain hopeful that Australia will see temporarily above trend economic growth in coming quarters, thanks to support from improving business investment and elevated levels of infrastructure construction," Mr Oster added.

There was a noticeable bounce in business confidence, which NAB attributed a stronger global economic backdrop.

"This has helped to narrow the perplexing gap between business conditions and confidence evident over the past couple of years, and is an encouraging signal for investment," Mr Oster noted.

"That said, while business conditions have held at a high level through 2017, they have tended to outperform measures of activity in the national accounts in recent times."

Employment growth overstated

While official Bureau of Statistics data points to extraordinary growth in employment — more than 400,000 new jobs created in the past year — NAB's survey points to a less robust outcome with employment conditions edging down.

"The NAB Business Survey employment index has not experienced the same wild swings in recent years as the official employment survey from the ABS, and tends to suggest the official figures may be currently 'overstating' the degree of job creation," Mr Oster said.

"The employment index implies employment growth of a little less than 300,000 at present, and a slowdown to around 240,000 per annum over the next six months."

At that rate employment growth would slow to around 20,000 new jobs per month.

Forward orders — which has been something of bellwether for non-mining economic activity — also eased a touch in December, but they still point to an acceleration in domestic demand in coming months.

Construction is still growing strongly, with a substantial pipeline of both residential and non-residential work on the books, while mining has gone from being a major drag on the conditions index to a sector expecting above average activity.

That has helped lift business conditions in Western Australia, but the west still lags the activity reported in eastern states and South Australia.