Unemployment falls to 5.5 per cent in May

The number of hours worked by Australians has surged by the highest rate in a decade after the unemployment rate fell to its lowest level in four years on Thursday.

TD Securities Economist Prashant Newnaha said the result "surpassed street expectations by a country mile".

More than 52,000 people found full-time jobs in May while 10,100 part-time ones fell away, according to figures released by the Australian Bureau of Statistics.

The result defied the predictions of economists, who had pencilled in a boost of just 10,000 new jobs. Australia is now within half a per cent of the floor of the so-called "natural rate of unemployment", according to a bulletin released by the Reserve Bank on Thursday.

Economists are usually sceptical of single-month results, but the release of the latest figures has put the rebound in the labour market beyond doubt.

Capital economist Kate Hickie said the 42,000 rise in employment in May marked the third month of "an exceptionally strong rate" of job creation.

The news was welcomed by Treasurer Scott Morrison and Labor's employment spokesman, Brendan O'Connor.

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The news was welcomed by Treasurer Scott Morrison. Photo: Andrew Meares

"When Australian businesses are providing jobs they are showing confidence in the economy," Mr Morrison said in Parliament on Thursday.

The number of hours worked by Australians jumped by 31.1 million hours in May, the biggest monthly surge in 11 years.

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Opposition spokesman for employment, Brendan O'Connor, said the figures did not show the full story of the labour market.
Photo: Alex Ellinghausen

The most accurate measure of the labour market, the employment to working age population ratio, increased over the year to May by 0.2 percentage points to 61.3 per cent.

Mr O'Connor said the figures did not tell the full story of the labour market.

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The participation rate edged up, to 64.9 per cent, from 64.8 per cent in April. Photo: Erin Jonasson

"Despite the rise in hours worked this month, hours worked per capita is at levels not seen since the mid-1990s, which emphasises the growth in part-time employment," he said.

"Underemployment remains at record highs, with more than 1.1 million Australians wanting more work but not being able to find it."

The underemployment rate for the three months to May decreased by 0.1 percentage points to 8.8 per cent.

'Welcome result'

ANZ economist David Gladwell said the increase in hours, which is another measure of the number of jobs added to the economy, could eventually bring some relief to those struggling through historically low wage growth.

"This will be a welcome result for households, with the absorption of spare labour capacity a prerequisite for any improvement in wages growth," he said.

Ms Hickie was more sceptical.

"There still appears to be plenty of spare capacity in the labour market, which will keep wage growth weak and mean that the Reserve Bank probably won't raise rates until 2019," she said.

The economy is adjusting to the end of a resource boom and the central bank has cut its benchmark rate to a record-low 1.5 per cent in order to encourage firms to borrow and hire.

NSW boost

NSW is largely responsible for fuelling the end of that transition, Thursday's figures showed, contributing 30,000 new positions in May. The Bureau said that can also be partly attributed to their methodology of rotating the survey.

Employment to population ratio

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Source: Australian Bureau of Statistics, Labour Force, May 2017 

The figures, which beat expectations of a flat rate of 5.7 per cent, buoyed the Australian dollar, which jumped more than a third of a cent to US76.27¢, nudging a two-month high.

Rate cut 'off the table'

CommSec chief economist Craig James said the Reserve Bank wouldn't be in a rush to lift rates, but rate cuts "could now be taken off the table".

"It's hard to see the doomsayers finding too many negatives in the latest jobs report. Even the underutilisation rate fell sharply in the latest quarter," Mr James said.

"More jobs and more hours worked means more spending and more momentum for the economy. This is a result to be celebrated by consumers and businesses alike."

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