Last year's event was held on Pyongyang's Kim Il Sung Square with a reported 100,000 people attending.
Pompeo has said in the past that he wanted to see full North Korean denuclearization before the end of Trump's first term in 2020.
The rapprochement on the Korean peninsula was triggered earlier this year when Kim chose to send athletes, cheerleaders and his sister as an envoy to the Winter Olympics in the South.
Kim's cancellation of the tradition follows President Trump's decision to halt war games with U.S. troops and the South Korean military while negotiations to denuclearize the North are ongoing.
Among them, 7,700 are still considered missing, including 5,300 in North Korea alone, according to the Pentagon. As he departed, Mattis confirmed that both the major Ulchi Freedom Guardian drill and two smaller training exercises with South Korea have been suspended, a gesture meant to keep negotiations with North Korea on track.
But doing so would represent a fundamental change on the peninsula: there has been no direct civilian communication between the two Koreas since their division was sealed by the 1953 armistice that ended the Korean War - not even post. North Korea has also tried to withhold its participation in family reunions until certain political conditions are met, such as halting activists in the South from sending outside information into the North. It said South Korea is willing to take unspecified additional measures if North Korea is continuously engaged in "productive" negotiations.
Pompeo, who has been charged with leading negotiations aimed at persuading North Korea to give up a nuclear weapons program that threatens the U.S., said he would "constantly reassess" whether enough progress was being made to continue talks.
The rally, which typically marks the start of a month of events commemorating the 1950-53 Korean war and denouncing the U.S., has been held for years and last year attracted 100,000 people in the capital, Pyongyang.