Hiring slowed sharply in May, as companies in industries hardest hit by Donald Trump's escalating trade war hesitated to bring on new employees.

The US economy added 75,000 jobs last month, a significant pullback from 224,000 jobs added in April, the Labour Department reported on Friday. The slow growth was the biggest red flag yet that the economy is under strain.

The unemployment rate remained at a five-decade low of 3.6 per cent, but wage growth disappointed, another sign of fading momentum.

Manufacturing and construction saw particularly anaemic job growth in May, one of the clearest signs that Mr Trump's tariffs are having a negative impact on blue-collar sectors the president has been trying to boost.

"The slowdown is really coming from the sectors that are most susceptible to trade tensions like manufacturing, construction, mining and logging. That does make me worried," said Martha Gimbel, research director for Indeed.com's Hiring Lab.

The hiring fizzle comes as Mr Trump has faced off in trade negotiations with some of the country's largest trading partners. The president announced late on Friday that he is suspending a plan to put a 5 per cent tariff on Mexican exports after his administration struck a deal with Mexico to stem illegal migration.

Still, Mr Trump is bargaining with the Chinese over a trade deal that would lift big tariffs each country has imposed on the other. Mr Trump is set to meet with China’s President Xi Jinping at the end of the month to finalise those negotiations. And other trade fights loom.

The lacklustre hiring report is not the only piece of data suggesting alarm about the economy. Earlier this week, the ISM Manufacturing Index fell to the lowest level of Mr Trump's presidency, another warning sign about the strength of the factory sector.

Despite the poor jobs report, the stock market rallied, with the Dow Jones industrial average jumping more than 263 points, or 1 per cent. The closely watched index of America's largest publicly traded companies recorded its best weekly performance so far this year.

Investors seem to be predicting the bad news will prompt the Federal Reserve to take action to bolster the economy, either when it meets later this month or at the end of July.

Wall Street sees more than a 75 per cent probability that the Fed will cut rates by the end of next month, according to the CME FedWatch Tool, which tracks investor bets on what the central bank will do.

"These data make it easier for the Fed to ease either this month or next," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

As stocks rallied, the bond market told a more pessimistic story, with investors bracing for a more severe downturn. The yield on the closely watched 10-year US Treasury note fell near a two-year low, a sign investors were seeking out ultrasafe assets.

"It's a flight to safety," said Michael DePalma, managing director at MacKay Shields. "There's geopolitics and there's trade wars. We are in the middle of a trade war with one of our three biggest trading partners and picking a fight with another one. There's just tons of uncertainty."

Business leaders are growing increasingly alarmed at Mr Trump's appetite for tariffs. Even the services sector saw slower job growth in May, a sign that sentiment could be turning in a number of sectors. The US economy has added an average of 164,000 jobs per month so far this year, on track for the slowest pace of gains since 2010.

Walmart chief executive Doug McMillon said on Friday, before Mr Trump's announcement, that the iconic retailer is "concerned" about Mexican tariffs causing fruit and vegetable prices to spike for US consumers.

"We don't want prices going up on those fresh items for customers and we will resist it as long as we can, but we can't tell when those prices have to go up," Mr McMillon said at the company's shareholder meeting in Arkansas.

Auto companies such as Ford and GM have repeatedly warned the president that his tariffs on America's neighbours and on metals are harming the industry and costing billions of dollars a year. Ford executive Joseph Hinrichs reiterated on Thursday that the president's tariffs are having a "significant impact" on the auto sector.

The president removed metals tariffs on Canada and Mexico in May and then threatened import duties on all goods coming across the Mexican border, which would have been an even more severe and costly move. A roughly 20 per cent tariff on Canadian lumber is hitting the construction industry.

Trump responds to China's retaliatory tariffs: 'This is a very positive step. I love the position we're in'

While the latest data is cautionary, economists caution against reading too much into any one jobs report.

Kevin Hassett, Mr Trump's chief economist, said much of the slowdown in hiring in construction can be explained by the torrential rains and flooding that pounded parts of the country.

"We think half the story is weather," Mr Hassett said. "Manufacturing did slow over the last few months . . . but attributing that to trade right now is tricky because Mexico just started and the China negotiations did only hit a roadblock in May."

Mr Hassett is still predicting growth will be about 3 per cent this year as Mr Trump's tax cuts and deregulation continue to play out. He also argues that markets and the economy could enjoy an upswing once trade deals are finalised.

"The economy has been much stronger than markets expected time after time," Mr Hassett said.

There was widespread expectation among economists outside the White House that growth and hiring would slow this year after a strong 2018 that was boosted by the tax cuts and additional government spending. For many, the debate is whether it will be a gentle or more violent fall.

"This looks like an economy that is slowing down, which doesn't mean that we're necessarily entering a recession. It does mean that we likely will not have the strength that we had in past years," Ms Gimbel said.

The US economy has also been expanding for 10 years, a record, and companies typically run out of people to hire at this stage of the business cycle, so some of the waning employment growth was anticipated.

May marked the 104th-straight month of job gains for the nation, a record streak that has helped many Americans, including those with disabilities or criminal histories, to find jobs. Many business leaders say finding workers is their top struggle, but they are not raising wages as fast as they were earlier this year.

The average hourly wage grew 3.1 per cent in the past year, above the cost of living but well below the 4 per cent growth experienced during the economic boom of the late 1990s.

Workers and economists had hoped to see stronger wage gains this summer as unemployment remained low, but wage gains appear to be stalling. Annual wage growth hit 3.4 per cent in February but has since pulled back slightly, raising concerns that this might be as good as it gets for workers this time around.

Job experts advise workers to ask for raises or look to change jobs soon before the economy shows more signs of weakening and that people should focus on getting their personal finances in order now.

"The weaker-than-expected May employment report serves as a reminder that the sun doesn't shine on the economy forever," said Mark Hamrick, senior economic analyst at Bankrate. "It underscores the need to save for emergencies and to pay down debt in preparation for the inevitable economic downturn or turbulence."