Australian employment officially fell by 22,600 in December, led by the loss of 31,600 full-time jobs, according to AMP Capital chief economist Shane Oliver.
"This was much weaker than market expectations for a 10,000 gain and [AMP Capital's] expectation for a 5,000 gain," said Mr Oliver.
But despite the unexpected fall, the unemployment rate has held constant at 5.8 per cent "thanks to a continuing slide in the participation rate as Baby Boomers continue to retire", he said.
The jobs market is still very soft, with Australian employment only rising by 54,600 during 2013 compared to average annual growth of 170,000 in the previous five years, said Mr Oliver.
"However, it should also be recognised that employment is a lagging indicator, with the weakness that we are now seeing reflecting the soft economic conditions and bleak outlook seen around the middle of last year," he said.
"With more forward looking economic indicators showing signs of improvement – for example, housing approvals, retail sales and consumer and business confidence – jobs growth should start to improve by around mid-year."
While the unemployment is likely to drift up into mid-year, the falling participation rate means it may only reach six per cent, he said.
"Given the lagging nature of the labour market and that the unemployment rate is no worse than expected, the poor December jobs report is unlikely to trigger another interest rate cut from the RBA which we continue to see leaving the cash rate on hold at 2.5 per cent for an extended period," Mr Oliver said.
