Australia's unemployment rate hits 5.6%

Australia's unemployment rate has jumped to its highest level in more than three years and is expected to rise further, boosting the chances of further interest rate cuts.

The unemployment rate rose to 5.6 per cent in March, from 5.4 per cent in February.

The total number of people with jobs fell by more than 36,000 as the unemployment rate hit its highest level since September 2009, the Australian Bureau of Statistics found.

The figures partially reversed a surprise surge in February, which saw total employment rise by 71,500, one of the largest monthly rises in the history of the survey.

Bank of America Merrill Lynch Australia chief economist Saul Eslake said while the February figure probably reflected changes to the population sample used by the ABS, the March data was a better reflection of the state of the jobs market.

He expects the unemployment rate to move higher in the next few months before peaking around six per cent.

In fact, he says, the unemployment rate would already have been that high if it hadn't been for a fall in workplace participation during the past two years.

The economy is still creating jobs but not quickly enough to keep up with population growth. And if the unemployment rate continues to rise, Mr Eslake believes further rate cuts will be back on the agenda as early as June.

"If this trend continues, and I expect it will, it will materially add to the case for further rate cuts," he said.

Business groups warned the latest unemployment figures were a sign of worse things to come in the jobs market.

"Amongst many sectors we are seeing hiring restraint or shedding including in construction, retail and manufacturing and there is no signal this is improving," Australian Chamber of Commerce & Industry chief economist Greg Evans said.

"We are concerned the mainstream economy may not be growing sufficiently to keep a lid on an unemployment rate which is trending higher."

But CommSec economist Savanth Sebastian said the volatility of the employment figures made it difficult to assess the current strength of the jobs market.

"If anyone had been wondering what was the true state of the labour market, they would certainly still be confused after the latest jobs result," he said.

"Such volatile swings in employment across two months certainly make it difficult to pick a trend. Clearly the answer lies somewhere in the middle."

Tasmania recorded the biggest rise in unemployment, lifting 0.7 per cent to 7.3 per cent, followed by NSW and Victoria which recorded increases of 0.2 per cent to 5.5 per cent and 5.6 per cent respectively.