Australian labour market data for April released today showed an unexpected decline in employment and an unexpected increase in the unemployment rate, perhaps indicating that policy tightening is starting to impact conditions. The participation rate remained steady at historically high levels.

The number of employed persons in Australia fell by 4,300 persons in April, down from an increase of 53,000 persons in March and substantially weaker than the consensus forecast for an increase of 25,000 persons. Full-time employment fell by 27,100 persons after increasing by 72,200 persons previously, partly offset by an increase of 22,800 persons in part-time employment after a previous fall of 19,200 persons. Work hours rose 2.6 percent on the month after falling 0.2 percent previously, with officials noting that this larger increase partly reflected the impact of the timing of Easter holidays.

Today's data show the unemployment rate rose from 3.5 percent in March to 3.7 percent in April, higher than the consensus forecast of 3.5 percent. The participation rate was unchanged at 66.7 percent, remaining close to record highs.

The Reserve Bank of Australia increased policy rates by 25 basis points at their meeting earlier this month. Although today's data showed somewhat weaker employment in April, wage data published earlier in the week indicate that tightness in the labour market may continue to put upward pressure on inflation, suggesting that officials will likely consider further policy tightening at upcoming meetings.

At a consensus rise of 25,000, employment in April is expected to slow versus a stronger-than-expected 53,000 increase in March. The unemployment rate is expected to hold steady at 3.5 percent.

The Labour Force Survey is a key economic indicator giving an overall picture of employment and unemployment. Employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The unemployment rate measures the number of unemployed as a percentage of the labour force.

This report is used as an indicator of the health of the domestic economy. Employment trends highlight the strength in job creation and the implications for future sectoral activity. The unemployment rate is used as an indicator of tightness in labor markets and can foreshadow a future increase in wages. Labor force data provide investors with the earliest signs of industry performance. While other data are produced with a month or two delay, these data are available only a week to 10 days after the end of the latest month. Reactions can be dramatic - especially when the result is unanticipated.

The information in the report is invaluable for investors. By looking at employment trends in the various sectors, investors can take more strategic control of their portfolio. If employment in certain industries is growing, there could be investment opportunities in the firms within that industry.

The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.