WASHINGTON, April 4 (Reuters) – U.S. job openings dropped to their lowest level in nearly two years in February, suggesting that labor market conditions were finally easing, welcome news for the Federal Reserve as it considers whether to pause its interest rate hiking cycle.

Despite the larger-than-expected decline in job vacancies reported by the Labor Department on Tuesday, the labor market remains tight, with 1.7 job openings for every unemployed person in February. The decline in job openings occurred before the recent financial market turmoil, which led to tighter credit conditions and sparked fears of broad job losses in the economy.

“This is another sign that the job market is cooling and is also a sign that we could see some downward pressure on wage demands and, thus, cooler inflation,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “However, the job market is still not at the point where the Fed can take a step back and chill.”

Job openings, a measure of labor demand, were down 632,000 to 9.9 million on the last day of February, the lowest level since May 2021, the monthly Job Openings and Labor Turnover Survey, or JOLTS report, showed. Data for January was revised lower to show 10.6 million job openings instead of the previously reported 10.8 million.

Economists polled by Reuters had forecast 10.4 million job openings. The decline was led by the professional and business services sector, where job openings fell 278,000. There were 150,000 fewer vacancies in the healthcare and social assistance industry. Job openings in the transportation, warehousing and utilities sector fell by 145,000.

But the construction industry sought more workers, with job openings increasing by 129,000. There were an additional 38,000 vacancies in the arts, entertainment and recreation sector.

The job openings rate fell to 6.0% from 6.4% in January.

The Fed last month raised its benchmark overnight interest rate by a quarter of a percentage point, but indicated it was on the verge of pausing further rate hikes due to financial market turmoil. The U.S. central bank has hiked its policy rate by 475 basis points since last March from the near-zero level to the current 4.75%-5.00% range.

“The labor market was starting to lose steam even before the banking crisis hit the economy in March and this sets up a dangerous situation where tighter credit conditions could prompt actual layoffs in the months ahead as corporations struggle to get costs under control,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

Hiring fell to 6.2 million from 6.3 million in January. That lowered the hires rate to 4.0% from 4.1% in the prior month.

Even as job openings declined, the number of people voluntarily quitting their positions increased 146,000 to 4.0 million. About 115,000 people resigned in the professional and business services sector.

In the accommodation and food services industry, 93,000 workers quit, while wholesale trade reported 31,000 resignations. About 18,000 educational services workers quit in February. But there were fewer quits in the finance and insurance industry, where resignations fell 39,000.

The quits rates, which is viewed as a measure of labor market confidence, rose to 2.6% from 2.5% in January.

Layoffs and discharges dropped 215,000 to 1.5 million.

Reporting by Lucia Mutikani; Editing by Paul Simao

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