Newcastle's official unemployment rate was 7 per cent in December, the lowest level since the start of the coronavirus pandemic.
The jobless rate fell to 6.5 per cent across the Hunter, just above the seasonally adjusted state average of 6.4.
After months of troubling statistics and an unexplained collapse in labour force participation, Newcastle and Lake Macquarie had an estimated 185,000 people in work last month, almost 6000 more than in November and the most since March.
The city's jobless rate peaked at 11 per cent in June as COVID-19 restrictions hit the labour market.
The jobless rate has been trending down since that point but was still 8.4 per cent in November.
Australian Bureau of Statistics figures issued on Thursday show Newcastle's workforce participation, the number of people in work or actively looking for it, rose by 3400 in December to 198,900, more than 11,000 higher than in August but still 6000 below the March level.
The unemployment rate, while healthier than at any time during the pandemic, is still well above the 5.4 per cent figure of a year earlier.
The ABS has also issued figures showing total time worked across the region fell 9 per cent in the November quarter compared with a year earlier, from 11.029 million hours to 10.046 million.
About 85 per cent of the almost million work hours lost in the Hunter was felt by full-time employees.
There's definitely an improvement ... but we've still got a little way to go to get back to the numbers we did have.Bob Hawes
Across Australia, the number of hours worked fell only 1.5 per cent in a year.
The national unemployment rate was a seasonally adjusted 6.6 per cent in December, down 0.2 percentage points from November and 1.5 percentage points from 12 months earlier.
Hunter Business Chamber boss Bob Hawes welcomed the improving employment trend but said workforce participation rates were still below pre-pandemic levels.
"I suspect, notwithstanding that we've recovered more than 20,000 jobs across the region since the start of the pandemic, there's still hidden unemployment because of that participation rate not being back up to scratch," he said.
"There's definitely an improvement, which is consistent with our business conditions survey a couple of weeks back.
"But we've still got a little way to go to get back to the numbers we did have.
"One of the other things that came out in our business conditions survey was some resistance from business until they're much clearer that we're beyond the grip of the pandemic."