NEW YORK (CNNMoney) — Hiring slowed sharply in March, with the economy adding only 88,000 jobs, the lowest monthly gain since last June. The unemployment rate slipped to 7.6 percent, according to a Labor Department report released Friday. But it’s not good news: It’s because nearly 500,000 people dropped out of the labor market. The labor force participation rate, which measures how many people are employed or looking for jobs, fell to 63.3 percent — its lowest level since May 1979. Economists surveyed by CNNMoney were expecting an increase of 190,000 jobs in March. They had expected the unemployment rate to hold steady at 7.7 percent. But some have also voiced concerns that forced government budget cuts and the uncertainty bred by the policy stalemate between Congress and the president could prompt employers to hold off on adding to payrolls. But there was at least one bright note in Friday’s report: Hiring in January and February were revised upward by 61,000 jobs. Some companies may have increased hiring in January and February, hoping for a stronger economic rebound in 2013, but then pulled back in March when sales didn’t match expectations, said John Silvia, chief economist at Wells Fargo. “The slower hiring will certainly make people less optimistic about economic growth going forward,” said Silvia, who also attributed part of the slowdown to seasonal factors that have dampened job growth each spring since the Great Recession. Hiring was dragged down by the retail sector, which lost 24,000 jobs, and at the U.S. Postal Service, which shed 12,000 positions. The drop in retail was particularly disappointing, considering that the sector had averaged an increase of 32,000 jobs a month for the past six months. Construction jobs held up though. The sector added 18,000 jobs in March, a pleasant surprise after a report earlier this week from payroll processor ADP showed hiring in construction remained flat. Overall, the private sector added merely 95,000 jobs, while the government lost 7,000 jobs. The lousy monthly jobs data concluded a week of downbeat labor market news. A report Thursday showed that initial unemployment claims jumped 28,000 for the week ending March 30. On Wednesday, payroll processor ADP said that private sector hiring had slowed in March.