The unemployment rate rose to 6.8 per cent in the June quarter, the highest for two years and above the post-recession average of 6.5 per cent.
And it was not a case of more people seeking work - the participation rate, which is the proportion of the working-age population employed or actively looking for jobs, fell to 68.4 per cent from 68.7 per cent in March.
The number of people employed fell by 2000, seasonally adjusted, when economists had expected a rise of 7000 or so.
But the fall masked an increase of 13,000 in full-time employment offset by a drop in part-time jobs.
Hours worked rose 0.5 per cent in the quarter, but were still down 0.4 per cent on a year ago.
The number of unemployed rose 2000 to 162,000, split equally between men and women.
A further 110,000 are underemployed, that is, part-timers who want to work more hours.
And the broadest measure, the jobless, which includes not only the officially unemployed but those who say they want a job but are not actively looking for one, is 271,000 - 20,000 more than a year ago.
"This was a genuinely weak labour market report, and will serve as further confirmation that the economy is operating well below its capacity," Westpac chief economist Dominick Stephens said.
"The Reserve Bank will feel even more comfortable with its plan to leave the official cash rate at its current, stimulatory level for a long while."
The only redeeming feature in the figures was the 0.8 per cent rise in full-time employment.
"However, even this growth in full-time employment is little more than payback for an unusual decline in full-time employment over the second half of last year," Stephens said.
After the weak jobs report, ASB economists have changed their forecast of when the Reserve Bank will start to lift the official cash rate from next March to June.
Before the rate could be lifted, future inflation concerns had to outweigh the risks posed by Europe's "never-ending crisis", ASB economist Jane Turner said.
"The weakness in overall employment growth and continued elevation of unemployment rate will reinforce that wage pressures will remain contained in the near future."
Stephens said the labour market had remained weak when other figures suggested economic activity in the first half of this year was much stronger than in the second half of last year.
A year and a half after the February 2011 earthquake, Canterbury remains a large weak spot in the national labour market.
The number of people employed in Canterbury at 307,000 is down 18,000 on a year ago and down 28,000 on two years ago, according to Statistics New Zealand.
In the June quarter, Canterbury's labour force and those not in the labour force fell by a combined 18,000, implying depopulation.
Excluding Canterbury the unemployment rate in the rest of New Zealand improved to 6.7 per cent from 6.9 per cent in the March quarter and employment rose by 15,000, Statistics NZ said.
But Stephens is sceptical of the numbers, which imply the working age population in the rest of the country rose by 1 per cent in just three months, nearly half of it as a result of migration from Canterbury.
"However," he said, "there is no corroborating evidence to support a mass exodus from Canterbury or any other source of population surge in the rest of the country."
Property, interest rates lift consumer confidence
Consumer confidence has crept higher in the latest monthly ANZ-Roy Morgan survey. The overall index rose to 114 from 111 last month; any reading above 100 indicates more optimism than pessimism.
"There is still caution but we are seeing marginal improvements," ANZ chief economist Cameron Bagrie said.
As possible reasons for improved sentiment he cites higher property prices, low interest rates and the prospect that they will persist for some time yet, and signs of improvement in labour incomes.
"There's enough there to keep people feeling okay. But not enough to have them feeling absolutely chipper. There are still some concerns out there, today's unemployment rate of 6.8 per cent, for example," Bagrie said.
Four of the five component questions in the survey which feed into the overall index improved.
Consumers still feel worse off than a year ago (by a net 5 per cent), though less so than last month (a net 9 per cent). They remain upbeat about their financial prospects a year ahead, a net 27 per cent expecting to be better off, up from a net 20 per cent in July.
Expectations of the general economy a year out improved, from a net 10 per cent in July expecting it to worsen to a net 6 per cent of that view this time. Sentiment towards the economy five years out remains positive, with a net 23 per cent expecting improvement against a net 20 per cent in July.
Households see it as a good time to buy a major household item.
Auckland was the only region to experience a fall in consumer confidence though it still has the highest level of confidence.