For the second consecutive month, the region returned the poorest performance level when compared to the other three surveyed areas - Canterbury-Westland, central and northern.
The local October reading of 47.5 points represented a slight improvement on the September result of 45.6 points, but again it fell short of the unpredicted August spike of 58 points, Otago-Southland Employers Association chief executive John Scandrett said yesterday.
"Once again we cannot, unfortunately, place hand on heart and say that we are seeing forward momentum building in the service sector at this end of the country.
"The hard data records slippage in sector confidence that appears to be aligned to the tailing off of the winter tourist season, Dunedin businesses having to address the annual exodus of the student population and what has been perceived by many consumers as chilly spring `stay at home' weather conditions."
Mr Scandrett had seen reports of sales level activity slowing, supplier deliveries behind target and a reluctance of operators to carry high inventories.
While the region was still behind others, Otago-Southland was not trailing Auckland in significant terms.
"I believe that it cannot be too long before we do see local service sector improvement and, given the pending run into the Christmas season, I would not be surprised to see our November and December readings go through the 50-point barrier," he said.
A reading above 50 represents an expansion in activity and one below 50 represents a contraction.
The national services index fell 3.3 points to 49.9 in October.
The two major contributors to the drop in overall activity came from a 9.6 point fall in activity-sales and a six point fall in new orders-business.
In contrast, employment displayed its first expansion since February 2008, although it was small.
The transport and storage sector led the way in October, with another strong improvement on previous results.
Retail slipped slightly from September but still remained in expansion territory.
