The ranks of the unemployed in Minnesota increased by 16,800 in July, leaving the state with the largest number of jobless people -- 171,500 -- in more than 25 years. That's nearly 40,000 more than July 2007.

Construction and manufacturing accounted for more than half the July job losses.

The state's unemployment rate hit 5.8 percent last month, a rate not seen since April 1986 and up from 5.3 percent the previous month, according to figures released Thursday by the state Department of Employment and Economic Development (DEED).

The jobs report was the latest sign of a struggling Minnesota economy, beset by falling home values, climbing foreclosure rates and rising bankruptcy filings.

The month also marked the fifth time in history that the state's unemployment rate was worse than the nation's, which came in at 5.7 percent in July, up from 5.5 percent in June. The other four times were all logged between February 2007 and May 2007.

The July spike in the state jobless rate was the fifth in the past seven months. Minnesota hasn't reported an increase in jobs since April, when the state added 6,170 jobs from the previous month.

"For the first time since this slowdown began, we have now moved into negative territory in terms of year-over-year job changes," said Steve Hine, DEED's labor market information director. "It's another clear indicator of the slowdown here over the last six months."

Said Minnesota state economist Tom Stinson: "Since January, seasonally adjusted, we've lost 16,000 jobs over a time when normally we would be adding 20,000 jobs or more."

The state lost 900 jobs in July compared with the same month the year before -- a slump not equaled in more than four years.

"It's clear confirmation that we're in trouble," said Lee Egerstrom, fellow at Minnesota 2020, a nonpartisan think tank based in St. Paul.

But Art Rolnick, director of research at the Federal Reserve Bank of Minneapolis, saw light where others saw darkness. The ratio of people employed to the size of the population remains higher in Minnesota than across the nation, Rolnick noted.

"A better indicator of well-being is what percentage of our population is working," he said. "A lot of us still work in this state. It's still a high-employment state."

But even that number was in decline. In July, 68 percent of Minnesotans had a job, down from 69.7 percent a year earlier.

However, both figures are far higher than national averages. Across the nation, 62.4 percent of the population held jobs in July, down from 63 percent a year earlier.

"There's no question the [Minnesota] economy is sluggish, just like the national economy is," Rolnick said. "But the notion that we're somehow falling behind the national average, that's not so. ... I don't subscribe to the notion that Minnesota is somehow starting to fall behind."

Six of 11 industries tracked by government statistics posted losses in July, a month in which Minnesota employers cut 8,600 jobs.

Statewide construction employment -- 128,004 -- was down 4 percent from a year earlier. At 338,264, manufacturing employment last month was down 2.3 percent from July 2007.

While initial claims for unemployment have not surged, the ranks of people on jobless roles has climbed appreciably.

"While businesses aren't laying off more people than usual, they're not hiring," Stinson said. "If you are unfortunate enough be laid off, it's harder and harder to find a job."

The few sectors that did add jobs include education and health care, up 2,500 positions, followed by trade, transportation and utilities, which added 1,000 jobs.

"Segments of the state economy are being tested by the nation's economic slowdown, including construction and other industries heavily exposed to the housing market," said DEED Commissioner Dan McElroy. "But there are pockets of growth in Minnesota, such as medical device manufacturing, education and health care, and financial activities sectors."

Mike Meyers • 612-673-1746