Some 2500 jobs were lost from the economy despite forecasters tipping a 20,000 employment gain following a surprise surge of 89,000 jobs in April.
But employment was still up by 2.3 per cent compared to May 2024, which was stronger than pre-pandemic, leading to a 10-year average annual growth rate of 1.7 per cent, Australian Bureau of Statistics head of labour statistics Sean Crick said.
"This fall in employment, combined with a drop in unemployment of 3,000 people, meant that the unemployment rate remained steady at 4.1 per cent for May."
The participation rate fell 0.1 per cent to 67 per cent.
Australia's unemployment rate has stayed below pre-COVID averages, despite elevated interest rates, in part because the labour market has been underpinned by strength in government-funded employment, such as in health and aged care.
But growth in market sector jobs - those not supported by government funding - has picked up in recent months, in keeping with a pick-up in private demand, said JP Morgan economists Ben Jarman, Tom Kennedy and Jack Stinson
"Rotation in employment growth from the public to private sector should improve allocative efficiency and help lift labour productivity growth," they said ahead of the release.
Meanwhile, listed salaries increased by 3.6 per cent in the year to May, according to a report by online job site Seek.
But monthly growth in May was just 0.2 per cent, the smallest one-month increase since October.
Seek senior economist Blair Chapman said the increase in wages advertised was welcome.
"The growth in average advertised salaries is currently outpacing living costs, which is good news for those switching employers as they are likely gaining a real wage increase," he said.
"This means they can purchase more goods and services or save some of their additional earnings."
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