But Key said the figures reflected increased confidence in the economy.
"We've created 5000 extra jobs in the last quarter. What it shows is that slightly more people are looking for work ... And what that indicates is there is more confidence coming back into the economy for people to start looking for work.
"We've created 63,000 more jobs in the last two years," he said, despite 16,000 jobs being lost due to the Canterbury earthquakes in the last quarter.
He said investing in the science sector, including today's announcement about a new Crown Research Institute for high-technology, would create more jobs.
He said it was too early to tell what impact the Rugby World Cup would have on the unemployment rate.
A 0.6 per cent reduction in part-time workers to 500,000 led the decline, though full-time employment was up 0.4 per cent to 1.72 million in the quarter. The tick up in full-time workers helped lift total hours worked 1 per cent to a seasonally adjusted 74.88 million hours.
The New Zealand dollar fell about half a US cent after the unemployment rate rose in the third quarter and employment growth was weaker than expected.
The kiwi fell to 78.76 US cents from 79.12 cents in response to the Household Labour Force Survey. It had been at 78.96 US cents at 8am from 79.39 cents at 5pm yesterday.
The kiwi fell to 76.11 Australian cents from 76.47 cents, which is the lowest level since June.
"The growth in employment reflects a rise in full-time employment, while part-time employment dropped slightly over the quarter," industry and labour statistics manager Diane Ramsay said in a statement.
The data comes after Tuesday's quarterly employment survey showed the number of full-time equivalent employees dropped 0.6 per cent to 1.32 million in the period, with total filled jobs flat at 1.69 million. On a seasonally adjusted basis FTEs rose 0.1 per cent and filled jobs grew 0.7 per cent.
The tepid jobs market will help ally inflationary fears for Reserve Bank Governor Alan Bollard, who last week kept the official cash rate at a record-low 2.5 per cent as the global financial volatility and slow-down in the economic recovery give him cause to keep stimulating the economy.
ASB bank economist Jane Turner said this morning's data was "fractionally weaker than ours and market's expectations".
The subdued result was driven by weakness in Christchurch, she said, with employment excluding Christchurch actually rising 0.9 per cent by our seasonally-adjusted estimates.
"This result indicates underlying employment demand remains strong. The robust 1 per cent increase in hours worked is also very encouraging, pointing to strong underlying labour demand and suggests further growth in employment over the coming year."
Turner said the underlying employment picture was more encouraging than the headline suggested.
"However, the sharp decline in Canterbury employment highlights the challenges the region continues to face. Throughout the rest of the country, the recovery in the labour market remains intact. This is very encouraging, particularly given the weakness in economic data recently," said Turner, such as the most recent disappointing GDP growth number.
"For the time being, the gradual recovery in the NZ economy appears to remain in place," she said.
Turner said that while she still expected the Reserve Bank to increase the OCR in March, the ongoing political drama in Europe saw the risks "increasingly skewed to a later and more gradual tightening cycle."
Combined Trades Union secretary Peter Conway said that Maori unemployment had now gone up from 13.7 per cent to 15.1 per cent and for Pacific peoples from 13.1 per cent to 13.8 per cent.
"Today's figures showing 157,000 people out of work tells us that many people are really struggling to get a job three years on from when the global financial crisis hit," said Conway.
"Although there are more people in work than three months ago, there are also 3,000 more unemployed. This is due to 4,000 more women being unemployed while there is a drop by 1,000 in the number of unemployed men."
It is notable that while Canterbury unemployment rose significantly (particularly for women) over the last year, its unemployment rate actually fell in the last quarter, while the rate in the country as a whole has risen.
"While unemployment in New Zealand is lower than in some other countries, we have gone from having the lowest unemployment in the OECD in 2005 to 12th lowest now, despite apparently having come out of the global financial crisis in better shape than most other OECD countries."
Conway said this suggested that jobs were not a high priority for the Government
Social Development Minister Paula Bennett yesterday released the government's welfare plan, which aims to streamline the benefit system and speed up efforts to shift unemployed and certain sickness beneficiaries back into paid work. The policy expects to move as many as 46,000 people off welfare and shift a further 11,000 people into part-time work over the next four years.
The number of people employed grew 0.2 per cent to 2.22 million in the three months ended Sept. 30, falling short of the 0.4 per cent growth predicted in a Reuters survey. The actual number of unemployed rose 1.7 per cent in the quarter to 157,000, the most since the December quarter last year. The number of people not in the labour force fell 0.2 per cent to 1.1 million.
The number of people employed in agriculture, forestry and fishing fell 4.3 per cent to 147,700 in the quarter, while manufacturing was flat at 244,800. Construction grew 1.5 per cent to 173,700 in the period.
Youth joblessness improved in the quarter for 15- to 19-year-olds dropping to a year-low 23.4 per cent from 27.6 per cent in the June quarter, though 20- to 24-year-olds' rate of unemployment grew to 12.2 per cent from 11.2 per cent.
Today's data showed a divergence between employment for men and women, with male unemployment falling 0.1 percentage points to 6.3 per cent, while female joblessness rose 0.3 percentage points to 7 per cent. Labour force participation for men improved to 74.8 per cent from 74.4 per cent in the June quarter, while women dropped out of the workforce, with the participation rate falling to 62.4 per cent from 62.6 per cent.
New Zealand's unemployment rate was the 12th lowest among developed nations, behind Germany's 6 per cent, but ahead of the Czech Republic's 6.7 per cent.
