Instead of more people finding work, more of the region's unemployed have abandoned the search and dropped out of official statistics.

There are now 16,000 fewer people employed in the Illawarra than there were in January as the region's employers have shed thousands of jobs.

Australian Bureau of Statistics figures released yesterday showed the unemployment rate for the Wollongong statistical division (encompassing Wollongong, Shellharbour and Kiama council areas) was 5.6 per cent for July.

That is down 2.6 percentage points from June, and four percentage points from May, when unemployment peaked in the region at 9.6 per cent.

Illawarra Research and Information Service executive director Simon Pomfret said the figures appeared contradictory as the region had lost 4000 jobs since the beginning of the year.

"Times are tough and we've got unemployment falling," he said.

"The participation rate has thrown the numbers out. The number of people qualified to say they are in the labour force or actively looking for work is normally around 60 per cent.

"For July it's at 52.4 per cent."

Mr Pomfret said disillusioned job seekers were giving up on their search for work.

He said they were no longer counted in official unemployment figures, making it appear as though there were fewer people without jobs.

"I very much doubt (unemployment figures) can fall any lower than they already are," Mr Pomfret said.

"The number of unemployed will stabilise, and as the participation rate starts to pick up we will see the number of unemployed will pick up."

As for the bigger economic picture, Mr Pomfret said consumer confidence was growing, although it had not translated into the real economy yet, and the economic downturn should have "bottomed out".