An estimated 76,000 new people came into employment over the month, taking the number of employed people in Australia above 14 million for the first time.
The employment to population ratio rose 0.2 percentage points to 64.5%, another record high; the participation rate also increased to 66.9%.
ABS head of labour statistics Bjorn Jarvis says there are more than a million extra jobs in Australia now compared to the pandemic.
"Just before the start of the pandemic almost 13 million people were employed in Australia. In May 2023, this had risen to just over 14 million people," Mr Jarvis said.
He also highlighted the new high for the participation rate for women.
"A greater share of women in Australia are employed than ever before, with their employment to population ratio and participation rate both at record highs in May," Mr Jarvis said.
There were 62.7% of women employed in May, up 0.2% from April.
The drop in unemployment was below economists' forecasts from all of the big four banks, who all anticipated the rate to hold at 3.7%.
The underemployment rate increased to 6.3% from 6.2%.
The outlook for July
Unemployment figures are one of the key data points that will influence the RBA's monetary policy decision in July.
Economists from all four of Australia's largest banks now forecast a risk of at least one more rate hike, and potentially two more.
RBA Governor Dr Philip Lowe said that despite unemployment increasing slightly in April, conditions in the labour market remain 'very tight', and these latest results show things did not ease in May.
For reference, the RBA considers a non-inflationary level of full employment to have a 4.5% unemployment rate; for inflation to get down to target levels by end-2024, RBA modelling shows the cash rate would need to be 4.80%.
A tight labour market can contribute to wages growth, particularly given the Fair Work Commission's decision to increase the minimum wage by 5.75% earlier this month.
Dr Lowe expressed concern in June's statement on monetary policy that a price/wage spiral is a possibility unless inflation is brought to target levels.
"The Board remains alert to the risk that expectations of ongoing high inflation contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the still very low rate of unemployment," Dr Lowe said.
More to come...
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