A March interest rate cut is increasingly likely after the unemployment rate jumped up to a 12 year high, economists say.
Unemployment rose to 6.4 per cent in January, from 6.1 per cent in December, a much greater rise than many expected.
The number of people in jobs fell 12,200 in January, with full-time employment dropping by 28,100, the Australian Bureau of Statistics said.
It was a "shocking report all round", according to JP Morgan economist Tom Kennedy.
"It really does suggest that the Australian labour market is still softening and that's a trend we think will continue over the next few months, pushing the unemployment rate towards 6.5 per cent and maybe a little bit higher," he said.
A sharp rise in unemployment increases the chances of a Reserve Bank rate cut in March, he said, which would follow a cut earlier this month to a record low cash rate of 2.25 per cent.
"At this stage the data have been quite mixed, we had some pretty strong housing numbers yesterday, but then we get this January jobless number, so it is a very fine balancing act," he said.
The futures market now sees a March rate cut as a 70 per cent chance, up from 40 per cent prior to the latest jobless figures.
"We think May is more likely than March, but March is going to be a live meeting in terms of market pricing and expectations," Mr Kennedy said.
National Australia Bank senior economist David de Garis agrees that another rate cut in coming months is likely.
"After two strong employment growth numbers, we've had some statistical payback," he said.
"If you've got growth in the working age population of 1.75 per cent and you're only creating jobs at 1.5 per cent, then you're going to have some people who won't be lucky enough to find a job."
Randstad employment market analyst Steve Shepherd said January jobs figures were a reaction to a strong rise in new jobs in December.
Full time jobs fell and part time jobs rose because staff were reducing their hours after the busy Christmas period, he said.
"We have to wait to see the February and March job numbers to get a clear picture of what is happening," Mr Shepherd said.
"This will enable us to eliminate any question of job volatility during the holiday period, particularly as the hospitality and retail sectors are two of the largest employment groups."
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