Job creation fell sharply in May with just 138,000 new positions created, while the unemployment rate declined to 4.3 percent, according to Labor Department data released Friday.
Economists surveyed by Reuters expected nonfarm payrolls to grow by 185,000 and the unemployment rate to hold steady at 4.4 percent.
Wage growth also disappointed, with average hourly earnings rising at a 2.5 percent annualized pace. The average work week was unchanged at 34.4 hours.
"This report is clearly soft in every material respect relative to expectations and relative to last month. That's a disappointment," said Eric Winograd, U.S. economist at Alliance Bernstein. However, he added, "I don't think it's soft enough to cause a fundamental rethink of the economic outlook."
In addition to the weak May numbers, previous months also saw significant downward revisions. March's weak 79,000 got sliced down to 50,000, while the April number declined to 174,000 from 211,000. Taken together, job growth has averaged just 121,000 over the past three months.
Several economists said the May numbers in particular often are subject to seasonal quirks and come in low.
"May has proven to be a difficult month for payrolls in recent years as spring hiring slows down and recent college graduates have yet to enter the labor force," Charlie Ripley, investment strategists for Allianz Investment Management, said in a note. "While today's number disappointed, we cannot ignore the fact that labor market conditions (are) tight and finding available workers to fill positions is becoming more difficult."
Professional and business services led the way with 38,000 new positions, while health care added 24,000. Mining grew by 7,000 and bars and restaurants added 38,000. Retail lost 6,100 jobs and government dropped by 9,000.
Job creation skewed toward lower-wage professions. Full-time jobs tumbled 367,000 for the month, while part-time positions rose by 133,000.
The unemployment rate decline was due primarily to a fall in the labor force participation rate, which declined two-tenths to 62.7 percent and remained mired around its lowest levels since the late 1970s. The rate, though, is at its lowest level since May 2001.
An alternative measure of joblessness that takes into account discouraged workers and the underemployed fell to 8.4 percent, its lowest reading since November 2007. The level of Americans counted as not in the labor force swelled to just below 95 million.
After the first two months of the year indicated stronger growth in job creation, the latest reports indicate that President Donald Trump has a lot of work to do to generate the the 3 percent-plus growth he has promised.
"The May report was a disappointment. Taken with the downward revisions, it suggests a continuation of the combination of slow GDP growth and weak productivity growth, emphasizing the need for structural reforms in tax, regulatory, and entitlement policies," said Douglas Holtz-Eakin, president of the American Action Forum.
The report comes amid hopes that the U.S. economy will accelerate after an anemic first quarter that saw GDP increase just 1.2 percent. Trump has maintained that his pro-growth agenda will ignite an economy that has shown steady but slow growth since the end of the Great Recession.
Federal Reserve policymakers are watching the jobs data closely, particularly for wage increases. The central bank is expected to continue on a path of periodic rate increases, but slowness in inflation could alter its plans.
Despite the weakness, Winograd does not think the numbers will deter the Federal Reserve from going ahead with a rate hike in June and a continued slow path back to normalized policy.
"The cumulative improvement of the labor market year-to-date is enough for them to move forward with the June hike," he said. "There's still some evidence of slack that allows the FEd to go slowly or very slowly with rate hikes."
Economists had been looking for a stronger report today, particularly after ADP and Moody's Analytics said Thursday that private payrolls surged by 253,000 in May.
As the market digested the report, expectations for a June Fed move remained high, with a 93.5 percent chance, but doubts remain about the rest of the year. The fed funds futures market was indicating just a 45.3 percent chance for another hike before 2017 ends, according to the CME.
Friday's report "really calls into question September and beyond," said Kathy Jones, chief fixed income strategist at Charles Schwab. "If we don't get a turnaround, particularly in inflation, it's going to be tough for the Fed to keep raising rates."