'In trend terms, total employment growth is basically zero', said ANZ's Justin Fabo.

The economy lost 31,600 full-time positions and gained 9000 part-time jobs in December. Photo: Theresa Ambrose

The jobless rate has remained at a four-year high of 5.8 per cent as 22,600 jobs were shed from the economy.

The economy lost 31,600 full-time positions and gained 9000 part-time jobs in December, figures released by the Bureau of Statistics today showed.

The participation rate dropped to 64.6 per cent, a seven-year low. Analysts had expected the unemployment rate to remain stable at 5.8 per cent, with 10,000 jobs added to the economy.

The participation rate ... it has fallen to a seven-year low.

The participation rate ... it has fallen to a seven-year low. Photo: HSBC/ABS

The Australian dollar fell almost a cent to a 3½-year low of 88.09 US cents after the data was released.

"[The] disappointing jobs growth reflects how businesses have been slow to respond to RBA rate cuts," Moody's Analytics associate economist Katrina Ell said.

"The unemployment rate doesn't adequately capture weakness in the labour market due to outsized growth in part-time positions and falling participation. Unless the Australian dollar falls further the RBA will be forced off the sidelines."

The aggregate monthly hours worked lifted by 600,000 million hours to 1.63 billion hours. The seasonally adjusted employment-to-population ratio slipped 0.2 percentage points to 60.8 per cent - the lowest since February 2005.

State and Territory breakdown

NSW and South Australia's unemployment rate edged lower by 0.1 percentage point to 5.8 per cent and 6.7 per cent respectively. Victoria and Tasmania's jobless rate remained stable at 6.2 and 7.7 per cent respectively.

The jobless rate rose by 0.2 percentage points in Queensland to 5.9 per cent and by 0.4 percentage points in Western Australia to 4.7 per cent.

In trend terms, the Northern Territory's unemployment rate eased to 4.2 per cent. It fell to 4 per cent in the ACT.

Participation rate

The stability in the headline jobless rate was due to a further fall in the participation rate, which looks at the percentage of people either in work or looking for work. The participation rate stood at 65.2 per cent one year ago.

As highlighted by TD Securities head of Asia-Pacific research Annette Beacher, if the participation rate had stayed at November's level of 64.8 per cent, the unemployment rate would have risen to 6.1 per cent in December.

"Through the course of 2013, we've had an increase in jobs of only 0.5 per cent. So it's very modest growth and really the unemployment rate would be trending higher had it not been for the fall in the participation rate," NAB senior economist Spiros Papadopoulos said.

Economists believed the falling participation rate is driven by an ageing population, with older workers exiting the workforce, and by the "discouraged worker" effect, where the unemployed have given up actively looking for jobs.

"It's a fairly soft report overall and it's really just reflecting the fairly weak growth in domestic demand that we saw in the second-half of last year," Mr Papadopoulos said.

Monthly volatility

Deutsche Bank senior economist Phil O'Donaghoe said while the economy lost jobs last month, the falls came after three months of gains.

"I don't think it changes our view of the economy," Mr O'Donaghoe said of the December data, adding that the monthly report was subject to sampling variability.

"There's conflicting forces on either side - you've got stimulatory policy with a rebound in housing and construction on the one hand, and they are positives. On the other hand, you've got a fall in mining investment, further weakness in commodity prices and the terms of trade and also pretty soft government spending.

"We do think the trend in the official employment numbers is softer than where we think the true economy is tracking. I think the economy is actually generating more jobs on average per month than is being caught in the official employment statistics at present."

The Treasury expects the unemployment rate to rise to as high as 6.25 per cent this year as the economy continues to expand at a below-trend pace, before it picks up again in 2015 as non-mining sectors pick up the gap left by a fall in resources investment.

A separate measure of the labour market from Roy Morgan Research, which was released earlier this week, found that the jobless rate rose to 11.2 per cent in December from 10.2 per cent in November. Roy Morgan said the rise in the unemployment rate was due to a large increase in the size of the workforce.

Interest rate expectations

Financial market expectations are pricing in a 12 per cent chance of a cut to the cash rate in February, up from 6 per cent earlier today.

Economists said the RBA has showed a preference for a weaker exchange rate, rather than a further easing in interest rates, to support the economy. The central bank has cut interest rates by 225 basis points since November 2011.

Westpac senior currency strategist Sean Callow said he expected the RBA to keep rates on hold next month, although the weakness in the jobs market could see it maintain a mild easing bias.