WASHINGTON (MarketWatch) — The U.S. created just 38,000 new jobs in May and nearly half a million people dropped out of the labor force, casting doubt on whether the Federal Reserve will raise interest rates later in June. The increase in hiring was the smallest since the fall of 2010. Economists polled by MarketWatch had predicted a gain of 155,000 nonfarm jobs. Most industries eliminated jobs last month, the first time that’s happened in several years. Also read: ‘Ouch’ and ‘crazy’ were the adjectives used to describe May jobs report The number of new jobs created would have been twice as large in May if not for a major Verizon strike that kept 35,000 employees out of work. But the jobs report was still the weakest in at least two-and-a-half years even if there were no ill effects from the strike. In a surprising twist, the unemployment rate fell to 4.7% from 5% to mark the lowest level since the month before the Great Recession began in December 2007. Yet the decline owed almost entirely to 458,000 people leaving the labor force, usually a sign that jobs are harder to find. The labor-force participation rate fell for the second month in a row to 62.6%, the Labor Department said Friday. The poor May jobs report and clear slowdown in hiring could force the Fed to delay plans to raise interest rates in either June or July. The central bank had been poised to raise rates soon amid a raft of other evidence suggesting the economy continues to grow at a modest pace. Also read: June’s out for a Fed hike, and July’s on life support What might still keep the Fed on track to raise rates is upward pressure on wages. Even though hiring has tapered off, the unemployment rate is low and many companies face pressure to raise wages. Striking Verizon employees, for instance, won a 11% increase in wages over the next four years instead of the 6% raise the company was offering. A survey by a trade group representing small businesses also said this week that firms are offering higher pay to entice workers. Average hourly wages climbed 0.2% last month to $25.59. Hourly pay rose 2.5% from May 2015 to May 2016, just a hair below the post-recession high. Still, the slowdown in hiring is sure to raise alarms at a Fed that’s already divided about its next move. Over the last three months, the pace of hiring has dropped to the slowest in four years. The government marked down the number of new jobs created in April to 123,000 from 160,000. March’s gain was lowered to 186,000 from 208,000.

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