The unemployment rate dipped to 7.6 percent from 7.7 percent in July, adjusted figures from the national employment agency showed on Thursday.
The number of jobless people declined by 40,000 and surprised analysts polled by Dow Jones Newswires who had expected a drop of 10,000.
In July the number of jobless workers had fallen by 20,000.
Capital Economics economist Ben May called the figure “a rare piece of good news for the economy” and said it underpinned the view “that Germany is still in better shape than most other eurozone economies.”
But Andreas Reest of UniCredit Markets warned that “the clock for the German labour market is literally ticking. It is only a matter of time before the economic slowdown will be felt.”
The German economy contracted by 0.5 percent in the second quarter of 2008, the first time in four years that activity decreased.
At Global Insight, Timo Klein said he expected unemployment “to fall modestly further during the latter months of 2008 and possibly even in early 2009, despite the dampening influence from the slowdown in economic growth.”
At the end of August, Germany had a total of 3.196 million unemployed workers.
Klein warned, however, that the decline in unemployment “may temporarily stall during 2009” and noted that despite the improvement, consumers were still unsettled by inflation fears.
Domestic consumption has failed to take off in Germany despite steadily falling unemployment as household purchasing power has been undermined by high energy and food prices.