Nationally, the index remained in expansion, above 50 points, but declined 0.8 points from June to 53.1, while Otago-Southland had its third consecutive month in decline, below 50 points, at 48.3.
The service sector includes tourism, hospitality, accommodation, restaurants, business and property and health and community services.
Otago Southland Employers Association chief executive John Scandrett said the southern 48.3 points meant the provinces were lacking direction in the sector.
"The other national regions have produced results that at varying levels support moderate expansionary trending patterns. It's tough to have to recognise that we here, in comparison, are underperforming," he said in a statement.
However, he said there were mixed opinions from construction, tourism and wholesale sub-sector performances, with both positive and negative feedback from those areas.
"It is a case of selected organisations doing well and other operators feeling grumpy about the slow trading outcomes," Mr Scandrett said.
While some tourism operators are experiencing growth in winter season activity, others are not seeing the desired benefit.
Similarly, there was activity in "selected" accommodation and restaurant services and growth across property services performance.
Business New Zealand chief executive Phil O'Reilly said that nationally there was either a slowness or lack of sales or orders, with many finding business conditions difficult.
Even for those businesses finding activity positive, there was little in the way of common themes to indicate improved activity in the months ahead, Mr O'Reilly said.
