The state's unemployment rate jumped to 8.6 percent in January from 8.3 percent the previous month, despite higher private sector job growth than much of the country.
The change came as thousands of Hoosiers reentered the workforce. At the same time, the national unemployment rate inched up to 7.9 percent.
Gov. Mike Pence reacted to the news by saying the "state's unemployment rate is too high" and plugging his plan to cut the state's income tax by 10 percent.
"As I have seen in my travels across the state, despite the progress we have made, our economy is still struggling," Pence said in a prepared statement. "In light of today's news, we have no choice but to remain bold in our efforts to strengthen our economy and put Hoosiers back to work."
But House Minority Leader Scott Pelath, D-Michigan City, said the state can do more to help struggling Hoosiers - including an expansion of Medicaid, something that is controversial among Republican leaders. The Indiana Hospital Association has said an expansion could lead to thousands of new jobs for Hoosiers.
"We are running the very real risk that when we reach the end of this session on April 29, we will not have helped the middle class: no feasible plan to create jobs, no way to attack crippling emergency room costs, and nothing that helps shore up our state's traditional public school classrooms," Pelath said.
"It's quite encouraging Indiana seems to be continuing the trend of private sector job growth into 2013," said Scott Sanders, the commissioner of the Indiana Department of Workforce Development.
Since July 2009, the low point of employment in the state, Indiana has outpaced the national average for private sector growth. Still, Sanders said the data from the U.S. Bureau of Labor Statistics doesn't make sense.
Even as Indiana experienced significant job gains in January, the 1,000 household survey used by the Bureau of Labor Statistics indicated the unemployment rate increased by 0.3 percentage points. That's due to the labor force increasing by nearly 14,000 individuals - more than 10,000 of which returned to look for work over the month.
January's increase signifies the largest one-month expansion of the state's labor force since November 1993.
"It is very confusing when BLS has survey data from 5,000 businesses showing continued increases in employment, while the household survey continues to show employment below what businesses are reporting," he said.
Sanders also noted that the bureau revised Indiana's December private sector job growth upward by more than 19,000 in January due to the agency's annual benchmark process.
Sectors showing significant gains in January include professional and business services, leisure and hospitality, and trade, transportation and utilities.
Lesley Weidenbener is managing editor of TheStatehouseFile.com, a news service powered by Franklin College journalism students and faculty.