US employers created 169,000 jobs last month, and the unemployment rate fell unexpectedly to 4.9 per cent, according to government figures.
Although August's job-creation tally fell slightly short of the 190,000 gain expected by Wall Street, job growth in June and July was stronger than previously thought. The unemployment rate is the lowest since August 2001.
Job gains in August were broad-based, although factory employment slipped by 14,000 - the third consecutive monthly decline. Over the past year, the manufacturing sector has shed 110,000 workers.
Overall, analysts believe the recent Hurricane Katrina will only be a temporary set-back to the $12 trillion US economy.
The decline in the unemployment rate came as a separate survey of households also found job creation robust.
Before Katrina, interest rate rises had been expected at each of the central bank's next two meetings but it's now highly likely the Fed will pause for a while.