Falling interest rates and tax cuts due on October 1 would hopefully start to reverse the downward trend for local service sector activity, Otago-Southland Employers Association chief executive Duncan Simpson said yesterday.
"This year is not shaping up to be a good one for the local service sector, with six out of the last eight months showing contraction in activity.
"A similar pattern has occurred in other regions, although we seem to be doing comparatively worse."
He was commenting on the Bank of New Zealand-Business New Zealand August Performance in Services Index (PSI), to which the Otago-Southland association contributes.
The Otago-Southland index was 39.3 at the end of August, down slightly from the 40.4 result in July, but well down on the 58.4 in August last year.
A reading above 50 indicates the sector is generally expanding and below 50 that it is declining.
Nationally, the PSI was 47.9, down from 48.9 in July and 11.5 points lower than the 59.4 level in August last year.
The August results ranged from 55.4 in the central region, which includes Wellington, to 39.3 in Otago-Southland.
"The results here reflect a general lack of consumer confidence flowing on to discretionary spending areas in many sectors of the survey, with the weather - unless you are a skifield operator - also playing its part."
Even in Queenstown, the results were mixed.
Good weather meant profits for skifield operators but quiet times for other parts of the service industry, he said.
The construction industry had been hit by bad weather as had some non-ski industry tourist operators.
Bank of New Zealand head of research Stephen Toplis said the services sector continued to be far from happy with its lot.
The Performance in Manufacturing Index (PMI), released last week, had shown a similar downturn in sentiment and activity.
Of particular concern was the extraordinarily low reading (41.2) for activity and sales, which accorded with the bank view that the third quarter would produce the third consecutive negative quarter of growth for the economy.
Supporting that was the poor retail sales data for July, Mr Toplis said.
It was also noteworthy that the PMI and PSI had both retreated since the last official cash rate (OCR) cut by the Reserve Bank.
"In theory, the slump in rates should be great news for corporate New Zealand, but we remain wary that the ongoing funding pressure faced by the banking sector will result in a continued deterioration in lending conditions for many."
That was not to say the Reserve Bank's actions to cut the OCR by 0.5% last week would have no impact, Mr Toplis said.
Without the latest cut, and the expectation of more to come, lending rates could have headed much higher.
"So while it may not feel like it, the Reserve Bank has certainly delivered businesses a favour and, while lending rates may not be heading down rapidly, there is growing reason to believe they may have peaked."
