Businesses are the most cheerful they have been since 1999, a good sign for growth and employment but a potential harbinger of higher inflation and interest rates.
ANZ's monthly business outlook survey found 56 per cent of respondents expected the general business situation to improve in the next 12 months while only 2 per cent expected it to get worse.
The net 54 per cent optimistic, up from a net 48 per cent in August, is the highest that indicator has been for 13 years.
Firms are also extremely upbeat about their own prospects, a net 45 per cent expecting a lift in activity, up two points on August.
Expectations of improved profitability have jumped to a net 33 per cent, from a net 25 per cent in the previous survey, underpinning gains in investment and hiring intentions.
A net 19 per cent of firms expect to increase staff numbers over the coming year, up from a net 18 per cent a month ago.
But Westpac economist Michael Gordon said the Westpac McDermott Miller employment confidence index, also released yesterday, showed workers were not seeing those intentions translate into action yet.
The improvement in business sentiment is nationwide but led by the main centres.
"In Auckland, our quarterly composite measure of business sentiment has lifted to its highest level in 18 years," said ANZ chief economist Cameron Bagrie.
"But Canterbury is higher still, with Wellington in third place. This regional depth gives us faith that New Zealand's expansion is not a one-trick pony."
When combined with the results of the bank's consumer confidence survey, it pointed to a pick-up in the rate of economic growth to not far off 4 per cent by early next year, Bagrie said, although "that's a stretch". Construction intentions, both residential and commercial, eased in September but remain high at a net 47 per cent and a net 35 per cent positive respectively.
Bagrie expects construction activity to rise from 8 per cent of gross domestic product last year to 11.5 per cent by 2017 but warns that the economy cannot handle a construction boom and a consumption boom at the same time.
"Something has to give," he said. "It's simply too big a job for the country to be able to carry on with business as usual elsewhere. New Zealand may simply not have the capacity on the supply side to keep up, which would see the inflation genie emerge from the bottle."
The Reserve Bank is known to be keeping a particularly wary eye on construction cost inflation.
The ANZ survey found a net 55 per cent of construction firm respondents intending to lift their prices over the next three months - the highest level since December 1992.
Yesterday's building consent data showed a small increase in residential consents issued in August, which would not assuage Reserve Bank concerns over the ability of supply side capacity to step up, Bagriesaid.
"Canterbury issuance continues to be underpinned by the rebuild, but with Auckland's annual consent issuance still well below historical averages, net immigration on the up, and a 30,000-plus housing shortage, there is a long way to go," he said.
"A strengthening construction sector usually brings more inflation and the consent data confirmed a hefty 5.8 per cent annual increase in residential building costs."
Economy-wide pricing intentions in the ANZ survey continued to drift up, with a net 30 per cent of firms expecting to raise their prices, up a point from the previous survey.
Inflation expectations at 2.3 per cent are closer to the rate of domestic inflation (2.5 per cent in the year to June) than to the headline rate of 0.7 per cent, which benefited from falling prices in those sectors where world prices and the exchange rate are an influence.
The high dollar may also have contributed to a drop in export intentions among manufacturers. Export intentions overall held up, at a net 23 per cent expecting a lift, down one point on the previous survey.