Business confidence up; caution on jobs

Economic activity surged in the three months ended December but the employment outlook suggested caution should remain, ANZ chief economist Cameron Bagrie said yesterday.

The latest New Zealand Institute of Economic Research (NZIER) Quarterly Survey of Business Opinion showed that economic activity reached levels not seen since mid-2007. Businesses were more optimistic, up 19% in December from -1% in September. With trading activity up 8% in December from -4% in September, annual GDP growth for 2012 was likely to be above 2%.

Mr Bagrie said two caveats were noteworthy.

''We've been here before with various sentiment surveys and noted a failure of the economy to kick on. For business sentiment to match reality we need to see a lift in consumer sentiment.''

Labour market readings also remained somewhat guarded, he said. Employment did tend to lag but it was still a key prerequisite to a broadening in the economic recovery. Job advertisements, a timely leading gauge of employment, continued to flat-line.

NZIER principal Shamubeel Eaqub said new hiring remained subdued and labour was getting a little easier to find outside Canterbury.

''This is surprising, as a recovery in activity tends to be accompanied by more jobs and increasing competition for labour that raises wages. This part of the recovery remains absent.''

It might be explained by reduced working hours during the recession which were now returning to more normal levels, rather than through increased hiring, Mr Eaqub said.

Capacity pressures were intense in Canterbury but there was little pressure in the rest of the country. Firms did not intend raising prices much and consumer price inflation would remain low.

Margins remained under pressure but profits were starting to lift on the back of better sales, he said.

Mr Cameron said the survey continued to illustrate regional differences with a large chunk of the recovery attributable to more positive readings from Auckland and, to a lesser extent, Canterbury.

The lift in Auckland appeared to be related to the resurgent housing market. Low interest rates were working their ''magic'' in the financial services sector. They were also propping up the longer-term construction sector outlook.

''Fiscal belt-tightening is contributing to a shorter pipeline for government sector work. While this suggests a strong recovery is in prospect, we believe structural considerations and the limited margin of construction sector capacity will temper this somewhat,'' he said.