Hourly wage growth at small businesses fell to the lowest level in a year, but hiring continued to climb upward, according to the Jan. 31 Paychex | IHS Markit Small Business Employment Watch.

Hourly earnings growth weakened to 4.66% year-over-year in January, the report found. Meanwhile, employment growth for small businesses inched up 0.18%.

"Although small businesses have struggled in attracting and retaining employees over the past two years, the job index shows they continue to make gains in hiring with the easing of wage increases," John Gibson, president and CEO of Paychex, a payroll services company, said in a news release. "The wage index also shows that employees of small businesses are increasing their hours worked to increase their earnings."

The one-month annualized earnings growth slipped to 2.88% last month, falling to its lowest point since December 2020, the report found. And one-month annualized weekly hours worked growth rose to 1.56%, increasing for the fifth consecutive month and reaching its highest level since mid-2020.

"Our small business wage data indicates that wage gains are moderating, as has been the aim of monetary policy by the Fed," said James Diffley, chief regional economist at IHS Markit, an information services provider.

The Federal Reserve’s Federal Open Market Committee on Feb. 1 raised its target rate to 4.5%-4.75%, up from 4.25%-4.5%, in a further move to control inflation, the central bank said. The Federal Reserve last updated its benchmark rate in December 2022.

The monthly Small Business Employment Watch uses payroll data from about 350,000 Paychex clients with fewer than 50 employees.