The Business New Zealand-BNZ PSI in April was 48.9 points, down from 50.8 in March and more than nine points down from the corresponding month last year.
In a turnaround from the performance in manufacturing index published last week, Otago-Southland recorded the lowest regional PSI result at 42.8, down from 52.9 in March, 61.1 in February and 59.2 in April last year.
The national PSI was the first below 50 result recorded and not unexpected, given recent economic data and trends.
"This shows a clear change in economic conditions compared with 2007, as the day-to-day business activities for many have been hit by falling confidence and increasing costs," Business NZ chief executive Phil O'Reilly said.
BNZ senior markets economist Craig Ebert said the April result showed the service sector, having held up remarkably well into the end of 2007, had since started to struggle.
"A good part of this, of course, reflects the sector's very direct exposure to the crunch working its way through the household sector.
"As we saw in last week's retail trade figures, consumer spending is now stalling indeed and is probably falling the way house prices have been doing for many months now."
It was of little surprise to see the retail sub-index of the PSI down at 48.5, compared to the relatively robust level of 52.7 in April 2007, he said.
However, the weakest spot seemed to be in the accommodation, cafes and restaurants category, where the April PSI reading was just 39.2.
Some of the weakness could reflect seasonality, although it had dropped well below the 58.9 level of April last year.
"That's interesting because it's an area of spending reliant on discretion at a time when squeezed budgets have consumers getting back to basics," Mr Ebert said.
The services sector was also starting to pull back from hiring.
That would feed back into the consumer section through lost jobs or a less heated employment and wages market that many had taken for normal.
It was worth remembering that the services sector, which was labour intensive compared with manufacturing, had the potential to shed a disproportionate amount of jobs when the process began.
That could go some way to explaining the big drop in jobs reported in the recent household labour force survey.
The job losses seemed to be mostly from service-type industries and the drop in employment appeared to reflect service-type people, some of who whom might not have been employees.
They could have included agents, consultants, contractors and the self-employed.
Real estate agents would be the obvious example, he said.
There had been a definite moderation in the jobs indicator and employment intentions.
"The question is whether business employment plans move into outright down-sizing mode over coming months.
While that remains to be seen, it would be an understandable response to an economy that is going as flat as we think it is and to intense pressure on costs and profitability."
Most regions showed a contraction.
The Otago/Southland region (42.8) was close to its poor January result.
The Canterbury-Westland region (48.1) experienced its second straight decline, while the northern region (49.8) remained close to no change for the month.
Only the central region (53.8) remained positive.
