Unemployment rate falls to 4.5 per cent as a result of more workers exiting the labour market.

Latest unemployment figures unveiled by the Australian Bureau of Statistics defied market expectations, with the jobless rate for August dropping 0.1 percentage to 4.5 per cent.

Despite the perverse fall in unemployment, national employment numbers dropped 146,000, while the participation rate shed 0.8 percentage points to 65.2 per cent and hours worked fell 3.7 per cent, or the equivalent 66 million hours lost.

Hours worked in the ACT fell 2.5 per cent over the month.

Economists were anticipating a rise in the unemployment of around 5 per cent, however ABS head of labour statistics Bjorn Jarvis, said the decline is reflecting a scenario where workers are exiting the workforce entirely due to lockdowns.

"The fall in the unemployment rate reflects a large fall in participation during the recent lockdowns, rather than a strengthening in labour market conditions," Mr Jarvis said.

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"Beyond people losing their jobs, we have seen unemployed people drop out of the labour force, given how difficult it is to actively look for work and be available for work during lockdowns."

ANZ economist Catherine Birch said in normal times the unemployment rate is usually the primary economic indicator, but that view has been thrown out the window since the beginning of the pandemic.

"Now when we look at the labour market data we have to take a more well rounded look," Ms Birch told The Canberra Times.

"Changes in hours worked, underemployment, participation rate, and the number of people who are working reduced hours or zero hours, are a much better reflection of lockdown and pandemic impacts on the labour market."

When taking into account the number of people exiting the job market, falls in participation and the reduction of hours worked to zero, Mr Birch believes the effective unemployment rate is likely around 6 to 7 per cent.

Employment minister Stuart Robert said falls in the number of employed people was most pronounced in NSW, which recorded 172,800 jobs shedding over the period.

"The figures released [Thursday] reflect the negative impact that the COVID-19 pandemic is having on global and domestic economic growth in the short-term," Mr Robert said.

Labor Treasury spokesman Jim Chalmers said the unemployment numbers "mask the tough reality that unemployment is only low because more than 200,000 people have stopped looking for work in the past two months, and 1.2 million Australians are 'working' zero hours".

Dr Chalmers claims once these people are factored into the equation, the jobless rate would sit above 14 per cent.

ANZ's economic team were anticipating the jobless rate to climb to 4.8 per cent, while Westpac placed its bets on a 0.4 percentage point rise to 5 per cent.

NAB Economics expects unemployment will peak to 5.2 per cent as a result of the third wave lockdown.

Ernst and Young chief economist Jo Masters flagged the messiness of the labour figures coincided with flatlining population figures due to the halt of overseas migration.

For the year ending March, more people left Australia than arrived, making it the first time since 1946 where net overseas migration has been negative.

"While dealing with Delta is front of mind, the alarm bells around migration are continuing to ring," Ms Masters said.

"Inbound migration fell by 334,000 people compared to last year, and it's clear that as vaccination rates rise, lockdowns ease, and employment bounces back skill shortages are again going to be front page news."

Mr Jarvis from the ABS noted the current lockdown is having a similar impact on the labour market to what occurred during Victoria's extended lockdown in 2020.

He also said a reduction in hours worked is becoming more common among people remaining employed.

"Compared with August 2019, there was an extra 1.2 million employed people who worked reduced hours for economic and other reasons in August 2021, including 532,000 who worked no hours for those reasons," he said.

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