Australia's unemployment rate has tumbled to 5.5 per cent as another 42,200 jobs were created in May.

The figures easily beat the market's consensus of a net 10,000 gain in job and the unemployment rate remaining steady at 5.7 per cent.

In seasonally adjusted terms, the number of full time jobs rose by 52,000, while part time employment fell by 10,000.

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It is the eighth consecutive month full time employment has risen, with 124,000 full time jobs created since September 2016.

The strong result was supported by an only marginal increase in the number of people looking for work, with the participation rate rising by less than 0.1 per cent to 64.9 per cent.

Other measures of labour market tightness showed the underemployment rate — where an employee works fewer hours than desired — just edged up, while hours worked rose by 1.9 per cent over the month.

"The much-stronger-than-anticipated rise in employment in May and the larger-than-expected fall in the unemployment rate will go some way to quashing growing talk of the chance of another interest rate cut by the RBA later this year," Capital Economics' Paul Dales said.

"Nonetheless, there still appears to be plenty of spare capacity in the labour market, which will keep wage growth weak and mean that the RBA probably won't raise rates until 2019 either."

JP Morgan's Tom Kennedy said a key issue was that the underemployment rate remains elevated and close to all-time highs.

"Growth has been consistently sub-trend, so this mix suggests that firms are still managing capacity through adjusting the number of hours worked, rather than altering headcount," he said.

Mr Kennedy said such a dynamic does not show up in the jobless rate, but explains the trend in weak wage growth.

"Given slack in the labour data is likely greater than the jobless rate would suggest, we still characterise today's print as consistent with the view that the RBA has more work to do," Mr Kennedy said.