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Employment boom unwinds two months of weakness

Australia's official jobs data has come in hotter than expected and given the Reserve Bank a reason to proceed with caution on its next interest rate move.

Yet changes to the way Australians are holidaying and starting new jobs in summer has injected volatility into the February labour force numbers and more data will be needed to get a reliable read on the labour market.

The unemployment rate fell 0.4 percentage points to 3.7 per cent, according to the Australian Bureau of Statistics, down from 4.1 per cent in January and much lower than the four per cent result pencilled in by economists.

The participation rate rose 0.1 percentage point to 66.7 per cent, the ABS data showed.

Workers in Sydney.
Growth in employment has averaged 23,200 over the past three months. (Bianca De Marchi/AAP PHOTOS)

About 116,000 jobs were added to the economy over the month - 78,000 of them full-time - which was also above the 40,000 rise in employment expected by economists.

Some bounce-back was anticipated to reflect changing summer labour market behaviours but even accounting for the statistical noise, the number of extra jobs was higher than expected.

Oxford Economics Australia lead economist Ben Udy said there was no reason to get "too excited" about the employment jump in February because it followed two months of softer prints.

The average rise in employment over the past three months had been a modest 23,200, Mr Udy said.

But he said the recovery in employment in February was stronger than forecasts and highlighted ongoing tightness in the labour market, which could be cause for concern for the Reserve Bank.

"These data clearly challenge the view that monetary policy is providing enough of a drag on the economy to bring down wage growth and inflation," he said.

The RBA has kept interest rates on hold at 4.35 per cent for three meetings in a row and economists broadly expect the next move to be down.

Debate continues over the timing of those cuts, with all four of the big banks expecting easing to start later this year.

Commsec economists Craig James and Ryan Felsman said the underlying trend in the labour market was one of gradual softening and given the seasonal shifts at play, the March dataset could tell a "very different" story.

"But for now, the optics mean that interest rates are going nowhere in a hurry," they wrote in a note.

Employment and Workplace Relations Minister Tony Burke said the RBA would consider headline figures as well as underlying trends when considering interest rate decisions.

"There's still softening going on throughout the economy," he said.

Asked if Australia could sustain such low unemployment and return inflation to target, Mr Burke said "we need to get to the point where we can do better than saying the path to prosperity is high unemployment and low wages".

"We want a situation where inflation is going down, wages are going up, employment is going up and unemployment is low."

Shadow Treasurer Angus Taylor said the strong labour market was masking financial pain in the form of higher rents, power prices and grocery bills.

"Australia is experiencing a GDP per capita recession and a consumer confidence recession," he said.

"Australians are working harder, for less under Labor."