A surprising drop in the US unemployment rate to a five-month low and a moderate gain in payrolls combined to ease fears that the economy could slip back into recession.
The Labour Department said that the jobless rate dipped to 5.7 per cent last month - the lowest since March - from July's 5.9 per cent.
The number of workers on US payrolls outside the farm sector rose by 39,000 in August, a number that was bolstered by federal hiring of airport security workers. The government also ratcheted up its tally of July jobs growth to 67,000 from the previously reported 6,000.
Stocks climbed on the rosier-than-expected figures. "We may be looking at only slightly better than a jobless recovery, but at least we're no longer looking at a double-dip recession. This report is a big relief," said Bill Cheney, chief economist at John Hancock Financial Services in Boston.
"The economy is showing signs of life," said Anthony Chan, chief economist at Banc One Investment Advisers in Columbus, Ohio. "The lower unemployment rate will go a long way towards stabilising consumer sentiment."
Over the past three months, jobs growth has averaged 47,000. While lacklustre, the pace is enough to suggest the economy is crawling forward in contrast to last year, when it was mired in a recession and companies were aggressively hacking workers from their payrolls.
The payroll figure was slightly above the 37,000 gain projected by US economists in a Reuters survey, while the drop in the jobless rate surprised economists, who had expected the rate to stay steady at 5.9 per cent.
"The labour market appears to be stabilising," US Labour Secretary Elaine Chao told reporters in a conference call.
A poll taken on Friday by Reuters showed that among the top US bond firms, none expects any rate move at the Fed's next meeting on September 24.
"The employment report takes away the political justification for the Fed to ease," Chan said.
Financial markets had been braced for the possibility of a very gloomy report that might have raised the spectre of a so-called double-dip recession, in which the economy would suffer a renewed downturn after a brief period of expansion.
In the early 1980s, for example, the economy suffered two recessions within a short time span.
A growing number of analysts, however, think the economy's trend might more closely mirror that of the early 1990s, in which it suffered a shallow recession in 1990-91 that was followed by initially slow growth and a "jobless recovery".
As was the case in the early 1990s, there is a widespread wariness among businesses about bringing on new workers.
In August, the payroll trend would have seemed much weaker if not for a gain of 41,000 government jobs. A big portion of that gain came from the hiring of workers for airport security, which is being turned over to the federal government.
The service sector churned out 100,000 new jobs. Of those, 51,000 were temporary workers.
One worrisome sign in the report was a large drop in factory jobs, which fell 68,000, the largest decline since January's 115,000 decrease.
Average hourly earnings rose 0.3 per cent to $14.82 after a 0.2 per cent gain in July, while the work week expanded to 34.1 hours from 34.0 hours in July.
"The doom and gloom on Wall Street has been exaggerated," said economist Sung Won Sohn of Wells Fargo Bank in Minneapolis. "Most economic recoveries are jobless in the beginning. Later in the recovery process, businesses regain confidence and accelerate hiring."