U.S. job growth slowed in June and Americans left the labor force in droves, tempering expectations for a September interest rate hike from the Federal Reserve.

Nonfarm payrolls increased 223,000 last month, with construction employment unchanged and the mining sector purging more jobs, the Labor Department said on Thursday.

Adding to the employment report's soft tone, 60,000 fewer jobs were created in April and May than previously reported.

At least 432,000 people dropped out of the labor force, pushing the unemployment rate two-tenths of a percentage point lower to 5.3 percent, the lowest since April 2008.

The shrinking work force drove the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, to 62.6 percent, the lowest reading since October 1977. The participation rate had touched a four-month high of 62.9 percent in May.

The weak employment report, which suggests the economy might have lost some of its recently found momentum, argues against the U.S. central bank raising interest rates in September as most economists had been expecting.

After the data, futures contracts showed that traders saw January's Fed meeting as the first at which a rate hike is more likely than not, based on CME FedWatch, which tracks expectations using its Fed funds futures contracts.

"If anything, it buys the Fed a little more time before the first rate hike. It puts September a little more in question but we still think they move in September," said Wilmer Stith, a fixed income portfolio manager at Wilmington Trust in Baltimore.

The dollar fell against a basket of currencies, while prices for U.S. Treasury debt rose. U.S. stocks opened slightly higher.

Economists had forecast nonfarm payrolls rising 230,000 last month and the unemployment rate dipping to 5.4 percent.

From consumer spending to housing and consumer confidence, economic reports had taken a decisively strong tone since May, prompting many forecasters to raise their second-quarter growth estimates to above a 3 percent annual pace. The economy contracted at a 0.2 percent rate in the first quarter.

PALTRY PAYCHECKS

Last month, average hourly earnings were unchanged, taking the year-on-year increase to a paltry 2.0 percent. The surprise weakness in wage growth could be because the payrolls survey period ended on June 13, which usually tends to exert a downward bias on earnings.

Anecdotal evidence and other measures of wage growth suggest paychecks are getting fatter.

State and local governments have raised the minimum wage and surveys show entry-level wages for new college graduates are rising. In addition, Walmart, the nation's largest private employer, has announced wage increases twice this year.

"If we continue to get this type of payrolls report again in July and August, the Fed won't move in September. If they don't see wage growth, they could wait until next year," said Mark Zandi, chief economist at Moody's Analytics in West Chester, Pennsylvania.

There were, however, some encouraging signs in the employment report.

While the participation rate tumbled last month, there were improvements in other labor market measures that Fed officials are eyeing as they contemplate raising interest rates for the first time since 2006.

A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to 10.5 percent, the lowest since July 2008, from 10.8 percent in May.

In addition, the number of long-term unemployed continued to fall, touching its lowest level since late September 2008. Americans are also experiencing shorter spells of unemployment.

Last month, factory jobs increased 4,000, adding to a 7,000 gain in May. Retail payrolls increases a solid 32,900 and transportation and warehousing created 17,100 more jobs.

The mining sector, however, lost 3,000 more jobs because of layoffs in the energy industry. But the pace of declines is slowing. The sector shed 18,000 jobs in May.

Oil-field companies, including Schlumberger, Baker Hughes and Halliburton, have announced thousands of job cuts after a more than 60 percent plunge in crude oil prices last year.