Labour market conditions in Australia remained tight in May, with unemployment falling and full-time employment rebounding from a previous decline. This strength will likely keep the focus of the Reserve Bank of Australia on risks to the inflation outlook, suggesting little prospect of a shift in officials' policy stance at their meeting scheduled for next week.

The number of people employed in Australia rose by 39,700 persons in May, up from an increase of 37,400 persons in April. The consensus forecast was for an increase of 27,000. Full-time employment rose by 41,700 persons after a previous fall of 7,600, partially offset by a fall in part-time employment of 2,100 after a previous increase of 45,000. Hours worked fell 0.5 percent on the month after no change previously.

Today's data also show the unemployment rate fell from 4.1 percent in April to 4.0 percent in May. The participation rate was unchanged at 66.8 percent, remaining close to record highs.

Employment in May is expected to rise 27,000 versus an increase of 38,000 in an April report that proved mixed. The unemployment rate, which climbed 2 tenths to 4.1 percent in April, is expected to recede to 4.0 percent in May.

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.