Economists had expected the unemployment rate to hit 5.6 per cent, with 10,000 jobs lost from the economy. Graphs: ABS. Softness in the labour market

ANZ's head of Australian economics Ivan Colhoun said despite the headline numbers, the trend growth in employment, coupled with other job indicators, suggested the jobless rate would continue to edge up over the next few months. "All of that is saying that we are still going to see the unemployment rate drift up in Australia. We are not creating enough jobs to stop unemployment from rising," Mr Colhoun said.

"Overall it's still not that strong. If you looked at hours worked, it's only up 0.6 per cent in trend terms over the year and for the month, they are below the levels of a year ago." The aggregate number of hours worked fell by 11.5 million hours to 1,628.5 million hours. Macquarie economist Gabby Hajj said the fall in the participation rate - the percentage of people either in work or looking for work - helped to cushion the movement in the unemployment rate. He added that the peak of the mining boom meant that more jobs had to be created in other sectors of the economy. "Over the last two years, mining has accounted all of the employment growth in the labour market. If you have a sector that is starting to decline, that growth engine for employment is no longer there and the responsibility rests with the rest of the economy, and that just doesn't look like it is pulling its weight," Mr Hajj said.

We are not creating enough jobs to stop unemployment from rising Odds lengthen on July cut Citi economist Paul Brennan said fears that employment would fall sharply after April's rise were not borne out. But he said the new data continued to point to softness in the labour market.



"Full-time employment has been flat over the last four months and the labour force participation rate remains below the levels of a year ago," Mr Brennan said. The dollar jumped to the day's high of 95.22 US cents, from the day's low of 94.38 US cents immediately before the data was released. It quickly fell back to 94.39 US cents, a level it had been trading at for the better part of the morning. Markets were surprised by the release as they had expected the unemployment rate to rise. Financial markets were pricing in a 35 per cent chance of a rate cut in July, down from 44 per cent before the data release.

Mr Brennan said today's figures meant that the Reserve Bank would not be rushing to review monetary policy in July. "We continue to expect no chance at the July meeting, and August is a possibility, but that would require a very good inflation reading for the second quarter," he said. "We are of the view that with the exchange rate having come off in the second quarter, that's going to benefit businesses down the track and the RBA can be patient about assessing the outlook for the economy." Jobless rate jumps in NSW, falls in Victoria The jobless rate rose from 5.3 per cent to 5.6 per cent in New South Wales. It also rose by 0.1 per cent to 5.8 per cent in Queensland and to 5.9 per cent in South Australia.

But it fell to 4.9 per cent from 5.3 per cent in mining state Western Australia, and by 0.4 per cent to 5.4 per cent in Victoria. In trend terms, unemployment rose from 4.8 to 5.1 per cent in the Northern Territory and fell from 4.2 to 4.1 per cent in the ACT. Mr Colhoun said in trend terms, the economy was adding about 10,000 jobs a month, with about 8000 jobs created in NSW. "The mining states of Queensland and WA are seeing flat or declining employment. WA is declining in trend terms at 1500 jobs a month," he said. Economists are tipping the jobless rate to rise above 6 per cent by the end of the year, a level not seen since July 2013, when it reached 6.1 per cent. The unemployment rate rose up to 5.9 per cent during the global financial crisis.

Analysts recently revised down their growth forecasts for Australia amid a slower-than-expected shift away from mining-led growth. Economists had said the May jobs report would play a key role in the Reserve Bank's decision on whether to continue its current easing cycle at its July board meeting. Unemployment rate (per cent, seasonally adjusted) May: 5.5

April: 5.6

March: 5.6

February: 5.4

January: 5.4

December 2012: 5.4

November: 5.3

October: 5.4

September: 5.4

August: 5.1

July: 5.2 New jobs

Loading May: 1100

April: 50,100

March: -36,100

February: 71,500

January: 10,400

December: -5500

November: 13,900

October: 10,700

September: 14,500

August: -8800