Unemployment rose in 23 states last month as the economy struggled to create jobs in the early stages of the recovery.

While layoffs have slowed, companies remain reluctant to hire. Forty-three states reported job losses in September, while only seven gained jobs, the Labor Department said Wednesday.

Some of the states that lost jobs still saw their unemployment rates decline, as discouraged workers gave up looking for work. People who are out of work but no longer looking for jobs aren't counted as officially unemployed.

That trend was evident nationwide in September, as nearly 600,000 people dropped out of the work force, the department reported earlier this month.

The U.S. jobless rate rose to 9.8 percent in September, a 26-year high, from 9.7 percent. Some economists estimate it would have topped 10 percent if there had been no change in the labor force.

There were some bright spots in Wednesday's report. The Midwest region, hit hard during the recession by job losses in manufacturing, saw its unemployment rate drop for the second straight month, to 9.8 percent from 10 percent in August. It was the only region where the unemployment rate declined.

The Midwest benefited from sharp drops in unemployment in Indiana and Ohio. Indiana's jobless rate fell to 9.6 percent, from 9.9 percent in August and 10.7 percent in June.

Indiana added 4,400 jobs, the most of any state, due to gains in the manufacturing and service sectors.

Ohio, meanwhile, saw its jobless rate drop to 10.1 percent, from 10.8 percent in August and 11.2 percent in July.

Still, Ohio lost about 6,000 jobs in September, and much of the improvement in its unemployment rate came from discouraged workers leaving the work force.

Nevada, Rhode Island and Florida last month posted their highest jobless rates on records dating to 1976, the department said. Fifteen states and Washington, D.C., reported unemployment rates of 10 percent or more.

Michigan reported the nation's highest unemployment rate at 15.3 percent. It was followed by Nevada at 13.3 percent, Rhode Island at 13 percent, California at 12.2 percent and South Carolina at 11.6 percent.

Real estate continues to bedevil states that enjoyed a housing boom. Florida's jobless rate rose to 11 percent from 10.8 percent in August, as the state lost nearly 13,000 construction jobs. California lost 39,300 jobs, including more than 14,000 in construction. Nevada lost 3,500 construction jobs, though it boosted employment in services.