The ANZ Business Outlook survey for April shows that firms are feeling more upbeat and that recent housing market policy changes are not likely to dent broader activity, says ANZ chief economist Sharon Zollner.
"Overall, the robustness of the data is starting to challenge our view that the economy will go largely sideways this year," Zollner said.
"However, resource constraints mean willingness to grow, and the ability to actually do so, are not the same thing."
Business sentiment and activity indicators were much higher in the late-month April sample, than in the sample from early in the month.
Nearly all the indicators were higher than in March.
The jump relative to the early-April read was likely influenced by a fading of the initial reaction to the new housing policies, plus the announcement of the transtasman bubble, Zollner said.
Broadly conditions are now around their long-run average.
But although firms were very busy, they were not necessarily having an easy time of it, as broad-based cost increases and freight disruptions took their toll.
"Given supply-side constraints are biting so hard, the confidence and robust employment intentions of firms may represent greater upside to wages and prices than to actual growth. It's looking like a pretty inflationary soup," Zollner said.
Firms reported worsening freight disruption, which could dent production, she said.
The softening in construction indicators were a concern too.
"The RBNZ will be keen to look through cost-push inflation as far as possible, because it's temporary (though it may stick around longer than expected) and not growth-friendly," she said.
Well-anchored inflation expectations provided headroom for this strategy to run a while yet.
"But there's clearly plenty of demand and risk-taking out there, amongst both firms and households, and that does grease the wheels for a more persistent lift in inflation to potentially get established."
The notion that the RBNZ might be overcooking things could gain some traction in the months ahead, especially with headline inflation expected to rise above 2 per cent in mid-2021, she said.
The results showed that the construction sector has now fallen back into the pack, after many of its activity indicators deteriorated again over April.
Agriculture remained relatively pessimistic, which was not unusual, but its business confidence and activity indicators saw decent bounces, Zollner said.
Across the economy, cost expectations and pricing intentions stood out for being elevated relative to history.
"Profitability remains relatively squeezed, no doubt hit by cost increases."
Export intentions also remained an area of concern, and freight disruptions remained problematic, having worsened for construction and retail. Disruptions also remained significant for manufacturing.