U.S. job openings fell and hiring slowed to the weakest since 2020 in February, pointing to cooler labor demand before the war in Iran triggered additional uncertainty.

Vacancies decreased to 6.88 million from an upwardly revised 7.24 million in January, which was the highest since May, according to Bureau of Labor Statistics data out Tuesday.

After a pickup in openings at the start of the year, the slowdown in hiring and vacancies indicates employers are proceeding cautiously after a year of near-zero job growth. Looking ahead, the war-driven surge in oil prices risks pushing up operating costs for companies and threatens to impede further hiring.

The hiring rate declined to the lowest level since April 2020 amid pullbacks in construction and leisure and hospitality, which may have partly reflected severe winter weather during the month. Business and professional services hiring also dropped.

The pullback in openings was driven by declines in accommodation and food services, health care and social assistance, and manufacturing.

“Continued declines in job openings and hiring affirm that employers remain cautious about expanding headcount based on what they know, such as rising costs of business, and what they don’t know, especially due to policy uncertainties as well as geopolitical tensions,” Noah Yosif, chief economist at the American Staffing Association, said in a note.

The layoffs rate edged up but remained low. While major employers like Meta Platforms Inc. and Oracle Corp. are moving forward with sizable job cuts as resources get redirected to investment in artificial intelligence, overall layoffs remain subdued across the economy.

With the number of unemployed people continuing to exceed job openings, the figures also reinforce the Federal Reserve’s view that the labor market is not a source of inflationary pressure. The ratio of vacancies per unemployed worker, a proxy of the balance between labor demand and supply, eased to 0.9 in February. At its peak in 2022, the ratio was 2 to 1.

Jobs report

The government’s jobs report due Friday is expected to show payrolls rebounded in March after a sharp drop a month earlier. With the war expected to push U.S. inflation higher this year, Fed officials are now seen keeping interest rates higher for longer, even as the job market remains soft.

According to the JOLTS report, the so-called quits rate, which measures the percentage of people voluntarily leaving their jobs each month, dropped to 1.9%. That matched the lowest level since 2020. This suggests people are less confident in their ability to find a new position.

Separate data out Tuesday showed consumer confidence unexpectedly rose in March on slightly more upbeat views of current conditions. The share of respondents who said jobs are currently hard to get climbed to the highest since 2021.

Some economists have questioned the reliability of the JOLTS data, in part due to the survey’s low response rate and sometimes sizable revisions. Another index by job-posting site Indeed, which is reported on a daily basis, showed openings picked up in February before falling sharply in March as the Iran war introduced more uncertainty about the economy.

(With assistance from Julia Fanzeres.)

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