Activity in the services sector is beginning to slow as firms feel the bite of rising costs and supply shortages.
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The BNZ-Business NZ Performance of Services Index (PSI) fell by 1.2 points in January to 47.9, which indicates the sector is contracting for the third consecutive month.
A reading above 50 in the PSI suggests expansion, while anything below signals contraction. The long run historical average of the PSI is 54.
The employment sub-index fell sharply over the past month, down by about 6 points to 46.9, which points to jobs being shed from the sector.
BNZ senior economist Doug Steel said firms were struggling with ongoing issues related to falling inventories and difficulties getting supplies.
"If we look at the component of the PSI, the supplier deliveries, that index is down at 41.6....[which] is quite a dreadful reading and suggests there are multitude of issues out there."
The measure of new orders was relatively strong at 53.7 which was a positive sign, Steel said.
The challenges felt by firms in the services sector were not balanced, with retail-focused businesses faring much better than their hospitality counterparts, reflecting the effects of borders closed to international tourism.
Across the regions, weakness in the PSI was most felt in Otago/Southland because of its reliance on overseas visitors.
"As we move through what was previously the international tourism peak period it is no surprise to see the tourism hole becoming more obvious," Steel said.
He said the PSI result for January was not out of the ordinary and was consistent with its view that the economy would be making a sluggish start to the year.
The bank was forecasting a dip in GDP over the first quarter.