Business confidence has continued weakening, while trading conditions also deteriorated in July, according to National Australia Bank's (ASX: NAB) monthly business survey.

The data revealed confidence had fallen from 4 in June to 2 in July. A reading above zero shows optimists outweigh pessimists.

The business conditions index shed 3 points to 5, losing all of the gain it made in the previous month.

NAB chief economist Alan Oster said the result is unexpected after marginal gains in June.

"The surprise reflected an expectation that the deal on the mining tax may have boosted mining confidence (after that sector fell significantly in recent months)."

"While confidence in mining did kick up (by 25 points) to better align with very strong mining activity and profitability data, substantial falls in confidence in manufacturing, construction and retail more than offset the 'mining' impact," Mr Oster said.

According to him, the report is indicative the retail industry is really struggling under the weight of higher interest rates and the waning government stimulus.

"Manufacturing and retail reported sizeable falls in business conditions. The latter result was disappointing and suggests last month's improvement may have been a temporary blip to an ongoing declining trend (indeed the trend index for retail at -8 points is the lowest since March 2009)," Mr Oster said.

The report also noted a marked decline in construction in July.

"The most likely explanation revolves around the passing of the peak in government construction spending, as well as a weaker housing construction market."

"As with the broader survey, the falls in construction were concentrated in profitability and trading while employment edged higher."

The report said the declines were largely unexpected or viewed as temporary.