The US unemployment rate unexpectedly dropped to 7.8 per cent in September, reaching its lowest level since President Barack Obama took office and providing a boost to his re-election bid.

The Labour Department yesterday said employers added 114,000 workers to their payrolls last month, a moderate number, but it said a combined 86,000 more jobs were created in the prior two months than it had previously thought. Other aspects of the report also were strong.

In particular, a separate survey of households found a big surge in hiring. That pushed the jobless rate down by 0.3 percentage point to its lowest level since January 2009, the month Obama took office. Economists had expected it to rise to 8.2pc.

The drop in the unemployment rate came even as Americans returned to the labour force to resume the hunt for work. The workforce had shrunk in the prior two months.

"There is something in these numbers for everyone. The rise in the participation rate shows somewhat of a real improvement in the labour market," said Commonwealth Foreign Exchange chief market analyst Omer Esiner.

The households survey, which can be very volatile month-to-month, showed employment increased 873,000, but it also showed a rise of 582,000 in the number of Americans who were working part time even though they wanted full-time work.

RBC Capital Markets chief US economist Tom Porcelli said that took a bit of the shine off the report. "That does not mean this is a bad report, just a ho-hum report," he said.

It was the second to last report before the November 6 election that pits Obama against Republican Mitt Romney, and possibly the one that will garner the most attention from voters.

Romney sought to remind voters that the labour market was still far from healthy.

"This is not what a real recovery looks like," he said. "We created fewer jobs in September than in August, and fewer jobs in August than in July, and we've lost over 600,000 manufacturing jobs since President Obama took office."

Persistently poor labour market conditions led the Fed in September to announce a plan to buy $40 billion worth of mortgage-backed securities each month until it sees a sustained turnaround in employment.

Despite the brighter signs on the jobs market, the central bank is unlikely to back off its stimulus anytime soon. After its September meeting, it said it planned to keep an easy policy in place for "a considerable time" after the recovery strengthened.

The Fed's ultra-easy stance has started to free up credit, supporting retail sales and construction.

Retail employment rose by 9,400, while construction added 5,000 jobs. Record low mortgages rates on the back of the Fed's monetary stimulus have spurred homebuilding.

Government payrolls rose 10,000 after increasing 45,000 in August.

However, temporary help jobs, which are often seen as a harbinger for permanent hiring, fell 2,000, and manufacturing payrolls dropped 16,000, a second straight monthly decline.-Reuters

Average hourly earnings rose seven cents last month, which could support spending, and the length of the average work week also increased slightly, another sign of strength.