AAP

Australia recorded strong employment growth in April as the participation rate rose to a record high, paving the way for a possible further rise in interest rates this year, economists say.

Total employment rose by 25,400 to 10,712,900, seasonally adjusted, the Australian Bureau of Statistics said on Thursday.

That was significantly higher than the average market forecast for a 10,000 rise.

The participation rate in April was a record 65.4 per cent, compared with 65.3 per cent in March.

Australia's unemployment rate was a seasonally adjusted 4.2 per cent in April, from 4.1 per cent in March.

Full-time employment rose by 19,000 to 7,658,000 and part-time employment was up 6,300 to 3,540,900.

Economists had expected a jobless rate of 4.1 per cent and a participation rate of 65.2 per cent.

Commonwealth Bank of Australia senior economist John Peters said there was a 50 per cent chance of another rate rise this year after the strong jobs figure.

"All the risks in terms of pricing for interest rates are skewed to the upside," he said.

"We have another quarter of a per cent (rate rise) in 2008 (as a) 50 per cent chance.

"The Reserve Bank is trying to slow domestic demand but these figures give us a warning things aren't slowing that much.

"It's not a sign of the economy wobbling at the knees.

"There are more people earning and spending their money - there are more people paying tax, that will boost the Budget surplus."

Mr Peters said the jobless rate only rose marginally because of the higher participation rate.

"All these people moving into the jobs pool think it's safe to go back and look for a job," he said.

ICAP senior economist Matthew Johnson said the labour market would continue to be strong over the remainder of the first half of this year.

"Employment tends to lag GDP (gross domestic product) by about two quarters," Mr Johnson said.

"First quarter GDP will be weak, so I think you'd expect to see labour market weakness in Q3."

But for now, employment remained strong, with the 19,000 lift in full-time jobs a signal that employers are confident about their businesses and the hiring of new staff.

"The labour market is not playing ball with people who are saying the economy is collapsing," Mr Johnson said.

"Those people who are saying things are falling apart and we'll have rate cuts by the end of the year are dreaming."

Mr Johnson said there was a risk the tight labour market could cause a wages-based rise in inflation.

"There's certainly a little bit of fear in the market that unemployment at these levels, combined with unions who are looking for a bit of blood, might produce a bit of wage inflation," he said.

"But at this point the labour market seems to be fairly benign."

In a statement accompanying the Reserve Bank of Australia's (RBA) decision to leave interest rates on hold on Tuesday, governor Glenn Stevens said there was accumulating evidence of slowing demand.

But it remained wary of an inflation-fuelled wages breakout.

"Should demand not slow as expected or should expectations of high ongoing inflation begin to affect wage and price setting, that outlook would need to be reviewed," Mr Stevens said on Tuesday.

Mr Johnson said the central bank was continuing to watch wages closely.

"They were letting the market know in no uncertain terms that if that occurs then that will start raising rates again," Mr Johnson said.

The Australian dollar was trading higher after the data was released at 1130 AEST.

The unit went from $US0.9376 at 1129 AEST to $US0.9432 at 1138 AEST.

Lehman Brothers chief economist Stephen Roberts said the strong rise in employment growth would be a disappointment for the RBA, which has expected domestic demand growth to slow.

"It's one of those factors which can tip the Reserve Bank back to feeling that domestic spending growth is not decelerating fast enough yet," he said.

"It's not enough to make them change their interest rate call but they'll combine the labour market information with second quarter CPI (consumer price index) data (due out in July) to see what they need to do."

Mr Roberts said the labour market data was likely to show weakness in coming months.

"Over the next three months we'll see one material weakness in the employment reading," he said.

"It takes a while for employment to turn down and when it turns down, it turns down more than you'd expect but we're not there yet."

The RBA increased official interest rates in February and March, taking the cash rate to a near 12-year high of 7.25 per cent.

The central bank wants to slow down domestic spending in a bid to arrest inflationary pressures in the economy.