15 Jan 2013

Business activity yet to bolster jobs market

6:15 pm on 15 January 2013

A key survey of business opinion suggests a surge of activity by Auckland and Christchurch firms helped the New Zealand economy spring back in the final part of 2012.

But the Institute of Economic Research's latest Quarterly Survey of Business Opinion is not showing the same recovery in the jobs market, which remains subdued.

The NZIER survey shows activity back to pre-recession levels throughout New Zealand. It surged in the final three months of last year with Auckland at the highest level since the mid-2000s, while Canterbury also increased strongly.

The increase was widespread, but strongest in the building and manufacuturing industries.

The institute says the results suggest that gross domestic product (GDP) will increase by about 2% in 2013.

Expectations for the first quarter of this year are also bouyant, with businesses their most confident about future trading in a decade.

However, the pick-up in activity and confidence is yet to flow through to the jobs market.

The survey shows firms' hiring and investment intentions outside the building industry remain subdued and are virtually unchanged from the beginning of the year.

Outside Canterbury, companies reported that it was easier to find workers in the final three months of 2012.

"It's very hard to find good people in Canterbury for the building sector but in the rest of New Zealand businesses are saying it's not very hard to find labour," NZIER principal economist Shamubeel Eaqub says.

The lack of a pick-up in jobs means wage growth will remain modest this year, he says.

The survey found a net 20% of companies expect general business conditions to improve in the next six months.

Firms' expectations about their prospects jumped, but Mr Eaqub says profitability, hiring and investment plans remain subdued, as does inflation.

"What we're seeing is a very gradual recovery in the economy, still a very gradual lift in inflation. So there's still not many warning signs for (the Reserve Bank) to raise interest rates."