Australia's services sector continued to contract in November as frugal households saved more of their income.
The Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (PSI) fell 1.1 points to 47.7 points in November.
A reading below 50 indicates a decline in activity.
The PSI index showed sub sectors linked to household spending including accommodation, cafes and recreational services remained sluggish.
Australian Industry Group Chief Executive Heather Ridout said the decline in services activity showed economic conditions in the non-mining sector remained flat and added to the case for a further cut to interest rates.
"All of this would suggest that a further rate reduction would be appropriate," Mrs Ridout said.
The Reserve Bank of Australia will announce on Tuesday whether it will cut interest rates or retain the current cash rate of 4.5 per cent.
Commonwealth Bank Senior Economist John Peters said the disappointing PSI outcome showed the services sector was struggling to gain traction against a high Australian dollar and concerns over the worsening European debt crisis.
A decline in household spending also contributed to the fall, he said.
"Households are particularly jittery about the economic and financial road ahead," Mr Peters said.
"They continue to baulk at spending and are particularly frugal in terms of spending on discretionary retail products and services."
