What does it all mean?

First and foremost it should be said that the unemployment figures are largely backward looking, highlighting the sluggishness in the broader economy in the lead up to and just after the election last year. More timely figures on consumer and business confidence, retail sales, lending finance and housing activity have been more upbeat suggesting that activity levels have firmed over recent weeks.

There is no doubt that over most of 2013 trading conditions were tough for businesses and as a result employers were not keen to take on additional staff. The pickup in in consumer and business confidence is translating into more activity. The $64 question is how quickly does this turnaround the labour market?

While employers are not out there significantly firing workers they are not adding to the workforce. Rather businesses have been in a holding pattern, awaiting an improvement in conditions and managing staff hours. A broader view of the labour market data shows that businesses are still more inclined to hire part-time workers and contract staff than take on full-time staff. Part time employment lifted by almost 122,100 workers over 2013 compared with 67,500 full-time jobs lost. In fact Full time job losses have occurred in ten out of the 12 months in 2013. The people getting jobs probably prefer full-time work to part-time work, and the loss in income has had an indirect hit on discretionary retail spending.

Interestingly hours worked has lifted by just 0.3 per cent over the past year. Employers may be getting part time jobs but certainly not working the hours they would like

The pickup in consumer and business confidence has started to translate into more activity. And in turn it will take a few more months to translate to improve business profitability and result in a lift in hiring. The latest results are more of a snapshot on how the economy looked 4-5 months ago. Clearly it takes time to take on new staff, from the start of the interviewing process to when the new starters finally commence work. But given the fact that the economy is crawling off a low base while also trying to adjust to the structural imbalances from the pullback in mining investment, it is likely the jobless rate will probably edge towards 6.0 per cent over the next few months.

While the Reserve Bank would be disappointed and concerned with the sluggishness in the labour market, policymakers would have to be pleased at the way the overall economic recovery is panning out. The housing recovery continues to gather momentum, while rising wealth levels is supporting confidence and in turn spending. In addition the lower Australian dollar should provide a boost to exports in coming months and help to alleviate the risks surrounding the rebalancing of the economy. The key area of concern is likely to be how quickly the labour market recovers. As such we expect the Reserve Bank to maintain an easing bias over the next few months, but further rate cuts are unlikely to be required. Cash rates have probably bottomed.