The August labour force report was softer than expected with employment falling by 10,800 (consensus +10,000), a second consecutive monthly fall. In trend terms employment is falling slightly on a monthly basis. The unemployment rate rose one notch to 5.8% in line with market expectations, but it was a small fall in the participation rate to 65.0% from 65.1% that prevented the unemployment rate from rising further. Among the states the unemployment rate rose in NSW, Queensland, WA, and Tasmania, but was steady in Victoria and fell in South Australia. There are some doubts about the August labour force report because the response rate was unusually low. Nevertheless, even on a full response rate it is doubtful whether the report would be significantly firmer. It is worth keeping in mind that the labour market is a lagging indicator. Leading indicators of activity have all been much stronger of late and global economic activity seems to be firming too. It is unlikely, therefore, that the RBA will be looking at the softness in the labour market as a reason to be cutting interest further at this stage. Instead, it will wait and assess the other activity signals to see whether they improve, as seems likely, over coming months. If they do, the labour market will take a firmer turn late this year and in 2014, without the need of further policy assistance.