The unexpected drop in jobs in August sent the Australian dollar tumbling from its three-month high on Thursday, as the currency was weighed down by a less than rosy outlook for the economy.
The number of people employed fell 10,800 from the previous month, when it declined by a revised 11,400, the Bureau of Statistics said. That compares with expectations of a 10,000 increase.
The jobless rate rose to 5.8 per cent from 5.7 per cent, the highest for more than three years.
The Australian dollar fell more than a cent from US93.52¢ to US92.53¢ ahead of the data.
Boosted by strong Chinese data, the Aussie had pushed 3.2 per cent higher in the past week, but the contraction in employment numbers lit up warning signals about the health of the local economy.
The number of full-time jobs declined by 2600 in August, and part-time employment fell by 8200, Thursday's report showed. The participation rate, a measure of the labour force in proportion to the population, dipped to 65 per cent in August from 65.1 per cent a month earlier.
The result was particularly worrying because the participation rate fell and the unemployment rate rose, Macquarie economist Gabby Hajj said.
"Normally that has an offset effect. If the participation rate falls, then unemployment will look better, but it was a double whammy this month."
Adding to the pessimism was the fact the Australian Electoral Commission had hired about 70,000 people to deal with the federal poll, Mr Hajj said.
Although this may show up in the September report, he had expected to see some positive effects.
The aggregate monthly hours worked rose 1.1 million, indicating employees are taking on more work, with businesses reluctant to bring on new hirings.
But this could change if forward indicators, which paint a more positive picture, are correct.
Earlier in the week, NAB's monthly business survey showed confidence had surged to its highest level since May 2011. Business conditions remained benign, but the discrepancy between two indicates that business sees some light at the end of the tunnel.
In another sign that the mining investment boom was winding up, Western Australia had the largest increase in unemployment, jumping 0.4 per cent, seasonally adjusted, to 5 per cent. But in Queensland, the unemployment rate actually fell 0.1 per cent to 5.9 per cent.
"The overall story is that the Australian economy is still in a soft patch and it's very much an economy in a period of transition," Deloitte Access Economics manager Kristian Kolding said.
WA was particularly exposed to this shift, Mr Kolding said, but Queensland could offset some losses by increases in tourism if the Australian dollar continued to fall.
The jobless rate in NSW pushed 0.2 per cent higher to 5.9 per cent. Victoria was stable at 5.7 per cent.
After a surge in unemployment in July, South Australia dropped 0.3 per cent to 6.8 per cent. Tasmania continued to suffer, well above the national average, as the jobless rate gained 0.1 per cent to 8.3 per cent.
In trend terms, unemployment rose to 5.5 per cent in the Northern Territory. It was stagnant at 3.7 per cent in the Australian Capital Territory.
Many economists are predicting the unemployment rate to hit 6 per cent by the end of this year, but Deutsche Bank economist Phil O'Donaghoe said the RBA was unlikely to feel any pressure to cut interest rates. "The RBA moves pre-emptively. It sets the cash rate now, thinking about where the economy is going to be in six to 12 months' time," he said.
Mr O'Donaghoe said the seasonally adjusted month-to-month employment number was highly volatile.