Australia adds jobs in May as unemployment eases, keeping rate outlook in focus

Australia's labour market strengthened in May, with employment rising after a decline in the previous month, according to new data from the Australian Bureau of Statistics.

Net employment increased by 40,300 in May, outperforming market expectations of 30,000 new jobs. April's employment figure was also revised lower to a decline of 40,600, making May's recovery more notable.

The unemployment rate edged down to 4.4% from 4.5%, while the labour force participation rate increased slightly to 66.7%.

Economists said the latest employment figures give the Reserve Bank of Australia room to keep interest rates unchanged for now, although inflation remains above the central bank's target. Some analysts believe another rate increase later this year is still possible if price pressures continue.

Despite the overall improvement, the report showed signs of softer labour market conditions. Most of the employment growth came from part-time jobs, hours worked declined by 1.1% during the month, and job vacancies fell 2.1% over the three months to May.

Separate figures showed household spending recovered in May as travel activity returned to normal following a slowdown in April linked to the U.S.-Israeli conflict involving Iran. The data suggested consumer spending has remained resilient despite higher borrowing costs and elevated fuel prices.

Financial markets made only modest adjustments following the release. Expectations for an August rate move remained limited, while investors also began pricing in the possibility of interest rate cuts in the second half of next year as oil prices returned to pre-conflict levels.

The Reserve Bank of Australia has raised its benchmark interest rate three times this year to 4.35% as it continues efforts to bring inflation back within its 2%–3% target range.