THE U.S. economy added the fewest number of jobs in seven months in April and Americans dropped out of the labor force, signs of weakness that left some economists anticipating only one interest rate hike from the Federal Reserve this year.

    Nonfarm payrolls increased by 160,000 jobs last month as construction employment barely rose and the retail sector shed jobs for the first time since December 2014, the Labor Department said Friday.

    April’s job gains were the smallest since September and below the first-quarter average job growth of 200,000. Adding to the report’s soft tone, employers added 19,000 fewer jobs in February and March than previously reported.

    The slowdown in hiring came against the backdrop of weak economic growth, subdued productivity and corporate profits. It prompted some financial institutions, including Bank of America Merrill Lynch and Barclays, to lower their interest rate hike expectations for this year to one from two before the report.

    “We now only expect one rate hike in 2016, in September, as we believe it will take longer for policymakers to accumulate sufficient evidence that economic and labor market activity is rebounding after a soft start to the year,” said Michael Gapen, chief economist at Barclays in New York.

    The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade. Fed officials have forecast two more rate hikes for this year. Economists had expected the first of the two increases in June.

    Market-based measures of Fed policy expectations have virtually priced out an interest rate increase at the Fed’s June 14-15 meeting, according to CME Group’s FedWatch.

    They see a less than 40 percent probability of rate hikes in September and November, with about a 50 percent chance at the December meeting.

    New York Fed President William Dudley, however, told the New York Times on Friday that two rate increases remained a “reasonable expectation.”

    The unemployment rate held at 5.0 percent last month because people dropped out of the labor force. The step-down in job gains could temper expectations of a strong rebound in economic activity in the second quarter after growth nearly stalled in the first three months of the year.

    Economists polled by Reuters had forecast payrolls rising 202,000 last month and the jobless rate unchanged at 5 percent.

    There were some silver linings in the report, with both average hourly earnings and the average work week rising.

    Average hourly earnings increased eight cents or 0.3 percent. That took the year-on-year increase to 2.5 percent from 2.3 percent in March, still below the 3.0 percent advance that economists say is needed for inflation to rise to the Fed’s 2.0 percent target.

    The average work week increased to 34.5 hours from 34.4 hours in March. The 0.4 percent increase in aggregate hours and higher earnings left workers with a 0.7 percent increase in their take-home wages, which should support consumer spending.

    Economists said the moderation in job creation was not surprising, citing weak business investment and a shortage of skilled workers in areas like construction.

    “Without business growth and development, there is little support for robust job creation. This morning’s report suggests we may already be seeing early signs of at least a modest slowdown in the pace of employment,” said Lindsey Piegza, chief economist at Stifel Fixed Income in Chicago.

    Other economists saw the slowdown in employment last month as payback for mild winter weather, which had seen strong hiring in retail and construction sectors in the first quarter.

    (SD-Agencies)