Australia’s May jobs report has yet again smashed expectations, with employment growth lifting strongly and unemployment tumbling to a multi-year low.

According to the Australian Bureau of Statistics (ABS), employment jumped by 42,000 in seasonally adjusted terms, easily surpassing expectations for an increase of 10,000.

April’s employment change, previously reported as an increase of 37,400, was also revised higher to 46,200.

It was the eighth consecutive month that an increase in employment had been recorded.

Full-time employment surged by 52,100 to 8,287,400 while part-time employment fell by 10,100 to 3,865,200.

Over the year, full-time employment rose by 148,000, outpacing an increase in part-time employment of 84,800. That’s a stark turnaround to what was seen only a few months ago when all of the job growth was coming purely from part-time employment.

In 2017, employment has now grown by 153,700 — an average of 30,700 per month. Over 98,000 of those have been full-time workers.

In the past three months alone employment has increased by 141,100, the fastest pace of hiring since November 2004.

Australia’s largest labour markets drove the strong May result with employment in New South Wales, Victoria and Queensland rising by 32,600, 6,900 and 5,500 respectively.

Courtesy of the lift in hiring, the unemployment rate tumbled to 5.5%, again topping forecasts for a steady reading of 5.7%.

It now sits at the lowest level since February 2013, a more than four-year low.

A sharp decline in the the female unemployment rate, tumbling 0.4 percentage points to 5.6%, was entirely responsible for the move, helping to offset a slight increase in the male unemployment rate to 5.5%.

Unemployment increases in New South Wales and Tasmania were overshadowed by declines in the rest of the country.

That decline came despite a lift in labour market participation, which rose to a ten-month high of 64.9%.

Despite the lift in participation, the large increase in employment was enough to see unemployment levels fall, dropping to 711,900, a decrease of 18,600 on April. It now sits at the lowest level since October last year.

The quarterly underemployment rate — largely capturing those who are in employment but who would like to work more hours — fell 0.1 percentage point to 8.8%. While a small decline, it was only due to an upward revision to the February figure that was originally reported at 8.7%.

That suggests that despite recent strengthening in hiring, there’s still ample spare capacity, or slack, that exists within the labour market.

While continued strong jobs growth will see that spare capacity eaten up, elevated labour market slack has contributed to weak wage growth in recent years, and as a consequence tepid inflationary pressures.

As a result of the declines in the unemployment and underemployment rates, Australia’s underutilisation rate fell 0.4 percentage points to 14.4%.

Although an improvement on February, as seen in the chart below, both rates are still trending higher at present.

Adding to the bullish report, the ABS said that total hours worked surged by 1.87%, or 31.1 million hours, to 1.6953 billion hours.

Combined, the increase in employment, hours worked and participation, along with the decline in unemployment, is an extremely strong result. It also reflects recent improvements in other labour market indicators such as the NAB employment index, job ads and various PMI reports.

The report will provide confidence to the RBA that labour market conditions are improving, potentially helping to boost wage growth, inflation and economic growth.

“The Reserve Bank of Australia will view these strong employment figures, and the associated decline in the unemployment rate, positively,” said Callam Pickering, APAC economist at Indeed.

However, while a very strong result on the surface, he believes there’s still plenty of reason for caution.

“There should be some skepticism of these numbers given the ongoing weakness in wage growth and soft economic conditions. It is too soon to declare the economy back on track,” he said.

Others, however, thought the strength in the data was not all that surprising given other labour market indicators.

“While the increase in employment was stronger than both the market and ANZ expectations, it does not look out of line with the improvement in (other) indicators,” said Daniel Gradwell, senior economist at ANZ.

“We continue to believe that employment will rise from here, although the recent rapid growth is less likely to be sustained.”