| Jobs scarcity is hurting consumer spending, which normally accounts for about two-thirds of economic activity [EPA]
Unemployment in the United States rose from to 9.6 per cent in July from 9.5 per cent, the country's labour department has said.
Friday's report said the economy lost 54,000 jobs last month, a better figure than the 120,000 loss expected by economists.
A bright spot in the August jobs report was the private sector's ability to create a much better than expected 67,000 jobs, although that was not enough to offset the government releasing around 114,00 temporary census workers.
The figures are seen as a crucial litmus test for the sputtering economic recovery and the policies of Barack Obama, the US president.
Obama called the figures "positive news" but said the numbers were not good enough and more needed to be done to address US economic woes.
The president said he would outline new measures next week to try to help boost the US economy.
The White House has ruled out an "extraordinary" new economic stimulus plan to boost the slowing recovery, but has said Obama is scouting new ideas to boost jobs and growth.
The rise in the jobless rate reflected an increase in the labour force as some discouraged workers resumed the hunt for jobs.
"We really need private businesses to step up and begin to hire more aggressively for this recovery to really gain momentum," said Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania.
The news was seen by Wall Street as moderately good, but will throw up challenges for the White House and the Federal Reserve as they struggle to help the jobs market to its feet.
Obama is embarking on a number of economy-themed events, including travelling to the hard-hit Midwest to highlight his economic recovery plans.
But with many legislators fretting ahead of November's mid-term elections and public concern mounting over the forecast $1.4 trillion budget deficit, the president's leeway is limited.
Jobs scarcity is hurting consumer spending, which normally accounts for about two-thirds of US economic activity, leaving the recovery from the worst recession in 70 years under threat.
Growth slowed markedly in the second quarter and Ben Bernanke, the Federal Reserve chairman, has said the central bank stands ready to take fresh measures to support the economy if needed.
Minutes of the bank's last policy meeting released this week showed several policymakers felt the outlook would have to deteriorate "appreciably" to spur fresh monetary support.
"The economy is in a bit of a lull and gauging how long we are stuck in this rut will determine if the Federal Reserve needs to step in," said Sweet.
The economy's poor health has weakened Obama's popularity and could see Republicans wrestle control of Congress away from the Democratic Party.