The US jobless rate dropped sharply in August, confirming the continued resilience of the economy and setting up the US Federal Reserve for a pivotal interest rate decision this month.

Stocks slipped on Wall Street as some traders judged the latest data as lifting the odds on the Fed raising rates for the first time in nearly a decade. The outlook for the Fed’s September meeting is, however, clouded by the recent China-induced market turmoil.

The US unemployment rate tumbled more than expected to 5.1 per cent, the lowest since April 2008, leaving it at the level that the Fed associates with full employment.

Payroll employment increased 173,000 in the month, well shy of analyst expectations for growth of 217,000, according to the US Bureau of Labor Statistics. Wage growth was muted.

August's payrolls readings are often subsequently revised, and revisions to June and July figures lifted the totals by 44,000. This means that over the past three months job gains averaged a healthy 221,000.

The robust labour market has stood at the heart of Fed chairwoman Janet Yellen’s case for higher interest rates, given the central bank’s view that as the economy hits full employment, wage growth will rise and inflation could accelerate towards the central bank’s 2 per cent target.

The US private sector has added more than 13 million jobs over the past 66 months, in its longest string of gains on record, fuelling arguments for the Fed to call an end to near-zero rates policy.

– Copyright The Financial Times Limited 2015