The local PSI for November was 47.6, up from the 37.7 recorded in October, but well down on the 62 result in November 2007.
A PSI reading above 50 indicates that the sector is generally expanding; below 50 that it is declining.
"Although the local result is the best for many months, it still points to a downturn in activity and the picture for forward orders and bookings remains unpromising," Otago-South-land Employers Association chief executive Duncan Simpson said.
Nationally, the seasonally adjusted PSI dropped to 47.3, continuing a run of eight consecutive months of activity contraction.
November regional results ranged from 44.8 (northern) to 55.3 (Canterbury-Westland).
Mr Simpson said that in contrast to October, the hospitality sector seemed to have done better than most other parts of the survey, although the lift in activity had come off a low base reading in previous months.
Many local tourism operators are also reworking plans around an anticipated downturn in double-digit territory, but remained reasonably positive about coping, he said.
The service sector index includes health and community services, accommodation, cafes and restaurants, transport and storage, property and business services and wholesale trade.
BNZ head of research Stephen Toplis said Reserve Bank governor Alan Bollard had put a few noses out of joint with his wide-ranging attack on business pricing behaviour.
His intent, apparently, was to reinforce the need for all players in the economy to do their bit to help keep inflation in check.
"While we have some difficulty with the specifics of his commentary, we certainly share the sentiment."
However, Dr Bollard had to recognise three points: aggregate inflation would fall to zero, below the Reserve Bank's 1% to 3% target band, if prices across the board remained as they were; a reduction in interest rates did not help contain inflation; in times of significant stress, corporates were often forced to increase their margins to improve overall profitability of falling unit sales.
"Whether they can get away with it is a moot point, but in some cases this will be the difference between survival and bankruptcy," Mr Toplis said.
Corporate New Zealand was getting well and truly beaten up by a combination of reduced demand and margin pressure.
That was why profits were under so much duress.
The aggregate price at which producers were selling their goods might have risen 8.6% in the year to September which seemed a lot, but the costs of their inputs rose 13.6% in the same period.
Some of the reasons were rising labour costs, rent rises, energy charges, financing costs and availability and the falling New Zealand dollar.
Time lags too were particularly problematical as although the spot price for some inputs was falling, contracted prices, including rents and fixed price debt, took longer to move.
New Zealand businesses operated in a highly competitive environment and prices and margins would eventually respond.
"Where lack of competition is allowing price gouging, there are mechanisms available to address this and they should be adopted. For everyone else, the competitive process will produce an environment where the price and volume of sales is determined by the market, as it should be," Mr Toplis said.
