Employment rose by 38,900 in May after rising by a revised 7,100 (previously 15,500 in April). Economists had expected a flat result.

• Full time jobs the key: In May part-time jobs fell by 7,200 after rising by 25,200 in April. Full-time jobs rose by 46,100 after falling by 18,000 in April.
• Jobless rate rises: The unemployment rate rose from 4.9 per cent to 5.1 per cent in May. The participation rate rose from 65.2 per cent to 65.5 per cent.
• Males workers are having a far easier time in the workforce: The gap between female and male underutilisation rates was the largest in 7½ years.
• Fewer hours worked: The number of hours worked fell by 0.3 per cent in May to be up 0.9 per cent in annual terms.
• Unemployment across states and territories: NSW 5.0 per cent (4.9 per cent in April); Victoria 5.4 per cent (5.3 per cent); Queensland 5.7 per cent (5.1 per cent); South Australia 5.1 per cent (5.2 per cent); Western Australia 3.8 per cent (3.8 per cent); Tasmania 6.6 per cent (8.1 per cent); Northern Territory 4.0 per cent (4.0 per cent); ACT 3.4 per cent (3.5 per cent).

What does it all mean?

• The latest employment figures are certainly heartening – a pickup in jobs across the economy. For the last year the missing ingredient in the domestic economy has been confidence, however this week may just change all that – providing a real catalyst for a turnaround in confidence. Rate cuts, strong economic growth data and the latest employment figures should provide a great deal of encouragement to policymakers, households and businesses. More people in jobs will mean more spending across the economy and more tax receipts for the government.
• Give all the media focus on job losses in key industries like manufacturing, transport and housing it is hard to believe that there is an ongoing improvement in labour hiring. Even economist forecasts centred on a flat result for May, but the result was far more upbeat with almost 39,000 jobs created. It seems that a fare proportion of Aussie businesses are holding onto existing staff or hiring new staff, positioning themselves for the pickup in growth and investment. It is the old adage that bad news travels quickly while good news gets swept under the carpet.
• But the result needs to be put into perspective. The job gains in April were revised lower to show almost half the job gains previously reported. In addition total hours worked fell in May while the unemployment rate ticked higher. What is clear is that the labour market is healthy but going sideways. Yes it was encouraging that employment grew for the third consecutive month but more forward looking indicators like job advertisements have suggested that further labour market gains may be more circumspect.
• Still comparing the job market in Australia with markets in Europe or the US is like comparing chalk with cheese. Australia’s job market remains healthy, supporting growth in the broader economy. And it is still the case that an extra 86,500 odd workers now have jobs compared with three months ago. And that means more latent spending power. Of course in the current environment people are still more likely to be saving rather than spending – however as confidence improves activity levels will pick up.
• Interestingly male workers are having a far easier time in the workforce than their female counterparts. The gap between female and male underutilisation rates (measures the proportion people that are unemployed or want to work longer hours) is the largest in 7½ years. The structural shift taking place across the economy seems to have something to do with the changing dynamics of the Australian workforce. More demand for male orientated jobs like mining and construction continue to outpace female orientated roles like admin, retail and service orientated sectors.
• The rate cuts over the last couple of months will help to support activity in coming months and provide businesses with a bit more breathing space – especially given that trading conditions are difficult. In addition the downside risks to global growth – particularly the slowdown in China and ongoing Euro zone debt concerns – will ensure businesses still show a level of cautiousness. As a result it is more likely that businesses will hold onto current staff rather than significantly adding to their workforce.
• The jobs data is unlikely to make waves at the Reserve Bank. Rather the central bank will be more focused on the current situation in Euro Zone and even the slowdown in China. Any escalation of the Euro Zone debt crisis is likely to prompt the Reserve Bank to move sooner rather than later when it comes to rates. In our judgement – and assuming Europe still muddles through in the next few weeks – the next interest rate cut won’t occur until August. Policymakers will want to get a better gauge of the impact from the recent rate cuts while conserving ammunition in case global conditions deteriorate sharply.

What do the figures show?

• Employment rose by 38,900 in May after rising by a revised 7,100 (previously 15,500 in April). Economists had expected a flat result. In May part-time jobs fell by 7,200 after rising by 25,200 in April. Full-time jobs rose by 46,100 after falling by 18,000 in April.
• The annual employment growth rate rose from 0.6 per cent to 1.0 per cent in May. The working age population rose by 19700 in May after lifting by 19,500 in April. The working age population grew by 1.22 per cent over the past year – equal to the smallest gain in almost 12 years.
• The unemployment rate rose from 4.9 per cent to 5.1 per cent in May. The participation rate rose from 65.2 per cent to 65.5 per cent.
  The number of hours worked fell by 0.3 per cent in May to be up 0.9 per cent in annual terms.
  Unemployment across states and territories: NSW 5.0 per cent (4.9 per cent in April); Victoria 5.4 per cent (5.3 per cent); Queensland 5.7 per cent (5.1 per cent); South Australia 5.1 per cent (5.2 per cent); Western Australia 3.8 per cent (3.8 per cent); Tasmania 6.6 per cent (8.1 per cent); Northern Territory 4.0 per cent (4.0 per cent); ACT 3.4 per cent (3.5 per cent).
• NSW led the job gains in May (+30,300), followed by Victoria (+13,500), Western Australia (+6,000), and South Australia (+2,400). Jobs fell most in Queensland (-5,700) and Tasmania (-4,300). In trend terms employment fell in Northern Territory (-300) and fell in the ACT (-300).

What is the importance of the economic data?

• The Labour Force estimates are derived from a monthly survey conducted by the Bureau of Statistics. The population survey is based on a multi-stage area sample of private dwellings (currently about 22,800 houses, flats, etc.) and a sample of non-private dwellings (hotels, motels, etc.). The survey covers about 0.24 per cent of the population of Australia and includes all people over 15 years of age, except defence personnel.
• If more people are employed, then there is greater spending power in the economy. But at the same time companies may adjust the work hours of employees. If employees work less hours, and therefore get paid less, then spending power in the economy is reduced.

What are the implications for interest rates and investors?

• As activity levels pick up over the coming year the Reserve Bank will focus more predominantly on wage costs and labour productivity. Over the medium term subdued wage costs and/or an improvement in productivity will be crucial in ensuring that the Reserve Bank has scope to comfortably cut rates.
• CommSec is pencilling in a quarter per cent rate cut in August, given the ongoing European debt concerns and the overall low inflation environment.