"Jobs went nowhere last year," St George chief economist Besa Deda said. "Nil jobs were created in 2011 compared with a net gain of nearly 370,000 jobs in 2010."



Labour market conditions at the end of last year would have looked even grimmer if thousands of potential job seekers had not dropped out of the market. Weak consumer sentiment is already hitting employment prospects in the retail sector while major banks are looking to shed thousands of jobs over the next two years as demand for their services stagnates.



"If the participation rate remained at 65.5 per cent, then the unemployment rate would have risen to 5.6 per cent," said TD Securities head of Asian-Pacific Research Annette Beacher. Instead, the participation rate - which gauges the share of the population working or looking for work - sank to 65.2 per cent, its lowest since May 2010. The dollar fell as much as half a US cent to about $US103.75 before clawing back half of the loss. The weaker dollar reflected investors increasing their bets that the RBA will cut interest rates when it meets on February 7. Financial markets are pricing a rate cut next month as a strong certainty and predict as many as three cuts by June. HSBC chief economist Paul Bloxham said the data made an RBA cut more likely.

"The data shows that unemployment has been on a slow grind for some time now," Mr Bloxham said. "I think this is still consistent with the RBA cutting interest rates next month, which is what we expect to happen." Big drop Australia's economy has outperformed most of the rest of the rich world over the past five years, aided in large part by Asia's strong demand for commodities such as iron ore and coal. Nil jobs were created in 2011 compared with a net gain of nearly 370,000 jobs in 2010

The US jobless rate, for instance, is 8.5 per cent, while it's 10.3 per cent in the euro zone nations, 8.4 per cent in Britain and 7.5 per cent in Canada. Even with the rekindled mining boom, though, the economy is struggling to create more jobs, particularly as the rising Australian dollar hurts local manufacturers and other export industries. December's net job loss was the most since April and only the second time in about nine years that the economy has lost more than 29,200 jobs in a single month. The news was not all bad, though, with 24,500 full-time jobs added for the month although employers also shed 53,700 part-time positions.



Aggregate monthly hours worked, meanwhile, increased 5.6 million hours to 1.622 billion hours for the month. By gender, the male unemployment rate fell 0.2 percentage points to 5.0 per cent and the female unemployment rate increased 0.1 per cent to 5.5 per cent.



NSW jobless surge

The jobless rate surged in New South Wales, rising 5.6 per cent, seasonally adjusted, in December from 5.2 per cent in November. In Victoria, the unemployment rate fell to 5.2 per cent from 5.5 per cent in the same period. It also fell in Queensland, sinking to 5.4 per cent in December from 5.7 per cent in November. In other states, the jobless rate was more stable. In Western Australia it was unchanged at 4.3 per cent in the two months. It was also flat at 5.3 per cent in South Australia over the two-month period. The market had expected the rate to stay steady at 5.3 per cent, according to Bloomberg data. 'Giving up'

National Australia Bank economist Alexandra Knight said the jobs numbers showed job-seekers were giving up looking for positions. "The overall outcome suggests the labour market is soft... it's consistent with recent softness in domestic activity." "It shows there has been a bit of 'discouraged worker' effect because we've seen the participation rate fall as well as the unemployment rate," she said. Ms Knight said the drop in the participation rate meant people were getting discouraged in the jobs market and falling out of the work force. Worsening outlook

Employment growth has become an area of concern for the Australian economy in recent months, amid a worsening outlook for the global economy. The forward-looking ANZ job advertisements index dropped 0.9 per cent in December, sending the measure into negative territory on an annual basis for the first time since February 2010. ANZ Bank revealed this month that it plans to cut up to a 1000 positions this year, as it prepares for a slower growing financial sector. Westpac is expected to slash as many as 600 positions across its operations this year, adding to job losses for the industry. An analysis by UBS suggests that Australian banks – major employers – could cut as many as 7000 roles in the next two years.

Retail jobs are also under strain with faltering growth in the sector eroding demand for new staff. Retail sales were flat in November with falls in department stores and clothing sales. Also, the shift by consumers to more online shopping has caught some of Australia's largest retailers unprepared. The European debt crisis, which accelerated at the end of last year, has also cast a cloud over hiring. Loading BusinessDay with AAP, Bloomberg

This reporter is on Twitter: @chrizap