US unemployment fell slightly to 4.7 per cent in August, suggesting the US economy is still generating jobs, but a sharp slowdown in the residential property market persists, according to data released yesterday.

Construction expenditure dropped an unexpected 1.2 per cent in July, pulled down by a 2 per cent fall in private residential activity. And the National Association of Realtors' pending home sales index plunged 7 per cent in July. Each was the biggest monthly decline of its kind for five years.

The fall in unemployment reversed a surprise increase to 4.8 per cent in July, according to the Labour Department's monthly employment report.

The report, among the most influential regular economic releases, also showed the US economy added 128,000 jobs last month, in line with expectations. The July figure was revised slightly higher to 121,000.

The rise in average hourly earnings was only 0.1 per cent, against consensus expectations of 0.3 per cent.

A higher number could have intensified fear that the Federal Reserve would be more likely to raise interest rates to fight price pressures.

"Optimists will continue to point to the household survey's more upbeat job growth, whilst pessimists can point to the peaking out of earnings growth and hours worked," said Rob Carnell, analyst at ING Financial Markets. He said the report had "no substantial market implications".

The fall in residential construction was offset by a rise in non-residential activity.