WASHINGTON (Reuters) - U.S. job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the labor market, which could put pressure on the Federal Reserve to cut interest rates this year.

The broad cool-off in hiring reported by the Labor Department on Friday was before a recent escalation in trade tensions between the United States and two of its major trading partners, China and Mexico. Analysts have warned the trade fights could undermine the economy, which will celebrate 10 years of expansion next month, the longest on record.

Adding a sting to the closely watched employment report, far fewer jobs were created in March and April than previously reported, indicating that hiring had shifted into a lower gear. The labor market thus far has been largely resilient to the trade war with China.

“Today’s report makes a cut more likely, and supports our view that the trade tensions will ultimately slow growth enough for the Fed to respond in September and December with cuts,” said Joseph Song, an economist at Bank of America Merrill Lynch in New York.

Nonfarm payrolls increased by 75,000 jobs last month, the government said. It was the second time this year that job gains dropped below 100,000. Economists polled by Reuters had forecast payrolls rising by 185,000 jobs last month. Job growth in March and April was revised down by 75,000.

President Donald Trump in early May slapped additional tariffs of up to 25% on $200 billion of Chinese goods, which prompted retaliation by Beijing. Last week, Trump said he would impose a tariff on all goods from Mexico to force authorities in that country to stop immigrants from Central America from crossing the border into the United States.

Talks to prevent the duties from kicking in at 5% on June 10 continue. Fed Chairman Jerome Powell said on Tuesday the U.S. central bank was closely monitoring the implications of the trade tensions on the economy and would “act as appropriate to sustain the expansion.”

Trump, who has routinely tweeted about the strong labor market, made no comment about May’s weak hiring, but defended duties on Chinese goods. White House economic adviser Kevin Hassett told Fox Business Network that bad weather in the Midwest was to blame and described the meager job gains as “a little bit of a blip down.”

Economists, however, said there was nothing to suggest the weather was the culprit.

“The weakness in job growth was broadly experienced across industry groups and not obviously driven by distortions such as weather or strikes,” said Michael Feroli, an economist at JPMorgan in New York.

U.S. House of Representative Speaker Nancy Pelosi, a Democrat, said the employment report was “a disturbing sign that the administration’s disastrous special interest agenda is hollowing out our economy.”

Following the report financial markets priced in a rate cut as early as July and two more later this year. Economists, however, believe the Fed will probably wait for more signs of labor market weakness and clarity on the trade issues before easing monetary policy. Fed officials are due to meet on June 18-19.

“Fed officials are likely to remain cautious at the June meeting and keep all their options open,” said Michael Hanson, head of global macro strategy at TD Securities in New York.

FILE PHOTO: Brochures are displayed for job seekers at the Construction Careers Now! hiring event in Denver, Colorado U.S. August 2, 2017. REUTERS/Rick Wilking/File Photo

The dollar fell to a 2-1/2-month low against a basket of currencies, while U.S. Treasury prices rose. Stocks on Wall Street were trading higher.

WORKER SHORTAGES

Last month’s slowdown in job gains, however, probably understates the labor market’s health as layoffs remain low.

Employment gains over the last three months have averaged 151,000, above the roughly 100,000 needed per month to keep up with growth in the working-age population. In the four months since the first hiccup in hiring appeared in February, however, monthly payrolls gains have averaged just 127,000, the slowest pace over a comparable stretch in nearly seven years.

Some of the weakness in hiring could be because of worker shortages, especially in the construction, transportation and manufacturing sectors. But the worker shortage argument is somewhat undercut by moderate wage growth.

Average hourly earnings grew just 3.1% year-over-year, the slowest annual increase since September. Just three months earlier, wages had been rising at their fastest rate in a decade but gains have moderated since.

The tepid employment report added to soft data on consumer spending, business investment, manufacturing and homes sales in suggesting the economy was losing momentum in the second quarter following a temporary boost from exports, inventory accumulation and defense spending. Growth is cooling as the massive stimulus from last year’s tax cuts and spending increases fades.

The Atlanta Fed is forecasting gross domestic product rising at a 1.4% annualized rate in the second quarter. The economy grew at a 3.1% pace in the first quarter.

The unemployment rate remained near a 50-year low of 3.6% in May. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dropped to 7.1% last month, the lowest since December 2000.

Hiring slowed across all sectors in May, with the share of industries showing job gains during the month the smallest since July 2016.

Manufacturing payrolls increased by 3,000 last month, after gaining 5,000 positions in April. The sector is struggling with an inventory overhang that has resulted in businesses placing fewer orders at factories.

Employers in the construction sector hired 4,000 workers in May after adding 30,000 jobs to payrolls in April. Professional and business services employment rose by 33,000. Transportation and warehousing payrolls fell as did retail employment. Government shed 15,000 jobs, the most in 16 months.