Business confidence lifted strongly in the three months ended June in response to an earlier interest-rate cut by the Reserve Bank.
The New Zealand Institute of Economic Research's Quarterly Survey of Business Opinion reported a seasonally adjusted net 18% of firms surveyed expected general business to improve, turning from a net 2% of pessimistic responses three months earlier.
Stronger profit expectations helped underpin the improvement in confidence, with a net 2% experiencing bigger profits in the quarter and a net 16% expecting more gains in the coming period.
NZIER senior economist Christine Leung said in a statement moderating cost pressures and improved pricing power had led to better profitability.
Demand held up up over the quarter, against earlier expectations of softening demand.
ASB senior economist Jane Turner said employment and investment intentions both improved and pointed to firm momentum in economic growth.
The labour market tightened in the June quarter with firms reporting increased difficulty in finding both skilled and unskilled labour.
"Unsurprisingly, skill shortages became particularly intense in the building sector. However, a tightening in labour market conditions was reported across most industries.''
The average of difficulties finding skilled and unskilled labour suggested the labour market was now the tightest it had been since before the global financial crisis, she said.
Difficulty finding labour appeared to be a key driver of the variation in the Reserve Bank's labour utilisation composite index and the bank was placing high emphasis on that indicator.
Tighter labour conditions suggested wage inflation pressures were likely to increase in the coming year, which would be a catalyst to stronger non-tradeable inflation.
The reported tightening in the labour market would increase the Reserve Bank's confidence in its inflation forecasts and was likely to further raise the threshold for official cash rate cuts below 2%, Ms Turner said.
Other inflation indicators, such as pricing intentions, improved slightly but remained at low levels, reflecting the continued deflationary impact of tradeable inflation and weak global inflation pressures.
Despite the lift in labour market pressures, consumer prices were likely to remain subdued for traded goods given the competitive retail environment and the recent surge in the New Zealand dollar.
On balance, the Reserve Bank would be encouraged with the results, suggesting domestic momentum had improved since March, she said.
The survey probably pre-dated the Brexit vote, which had rattled financial markets and increased global uncertainty. New Zealand activity was likely to remain "fairly robust'' in spite of offshore wobbles, Ms Turner said.
The QSBO follows ANZ Bank New Zealand's business confidence survey last week, which showed optimism was at a six-month high in June as the country's booming tourism and construction sectors continued to support economic activity.
Ms Leung said the building sector was a key driver in the economy and she expected gross domestic product (economic growth) would peak at 3% in the June quarter before moderating to 2.8% by the end of the year.
BNZ senior economist Craig Ebert said the QSBO affirmed BNZ views of a robust economy, with underlying inflation pressure.
"In this, there is absolutely no basis for Reserve Bank to ease, or even run overtly easy policy.
"But the caps that are being applied to headline CPI inflation through the strong exchange rate, commodity prices and partly backward-looking inflation expectations are bound to keep worrying the Reserve Bank.''
With threats to its forecast in CPI inflation, the Reserve Bank was likely to keep responding by cutting its OCR rather than promoting the flexibility that it had under its policy target agreement, while trying to obviate a bigger imbalance in the housing market by tightening its loan-to-value prescriptions even further, relatively soon, he said.
