Business conditions softened noticeably again in the December quarter under the weight of sagging profitability and ahead of the impact of the January floods in Queensland and northern Victoria, and Cyclone Yasi at the turn of the month and early February.

Business confidence fell back in the December quarter, all but returning to its mid-year softness.

The National Australia Bank business survey for the final quarter of 2010 found business confidence fell four index points to five while business conditions fell three points to two.

A reading above zero indicates optimists outweigh pessimists, so while confidence and conditions have weakened, they haven't gone negative.

"The survey suggests that optimism about the outlook was on the wane even before the severe floods in December and January," the NAB said.

The survey also showed that business conditions continued drifting down in the December quarter.

The NAB said this was, "consistent with ongoing weakness in domestic demand, reflected in soft forward orders and declining capacity utilisation".

Short and long-term expectations for business conditions weakened in December quarter.

"Short-term expectations for forward orders softened for the fourth successive quarter.

"The monthly results show a sharp flood-related reduction in conditions, and a further deterioration in orders, in January."

The monthly surveys show that conditions improved during the December quarter but fell heavily in January during the worst of the Queensland floods, the NAB said in commentary on the survey.