Aggregate Hours Worked Archives - the patient investor %

February 4, 2026February 4, 2026

RBA Admits Its Mistake

Key Points

The RBA raised its cash rate target by 25 basis points to 3.85%.
The consumer price index jumped to 3.8% for the 12 months to December 2025.
The unemployment rate fell to a seasonally-adjusted 4.1%.
The ASX 200 found support at 8800.

The RBA increased its cash rate target by 25 basis points to 3.85%, citing stubborn inflationary pressures and a labor market that is “a little tight.”

The trimmed mean, the RBA’s preferred measure of underlying inflation, increased slightly to 3.3% for the 12 months to December 2025, up from 3.2% in November. However, a jump in the consumer price index to 3.8% from 3.4% in November spooked the central bank into a speedy reversal of its recent accommodative monetary policy.

Australian CPI & Trimmed Mean CPI

The 0.25% rate increase comes less than 12 months after the RBA commenced rate cuts on 19 February last year. The cumulative 75-basis-point rate-cut cycle is the shallowest in the past 35 years, an acknowledgment that it cut too soon.

RBA Cash Rate Target

The seasonally adjusted unemployment rate fell to 4.1% in December from 4.3% in November, indicating a tighter labor market.

Australia: Unemployment

The S&P Global Composite PMI for Australia jumped to 55.7 in January 2025, the highest level in more than 3 years.

S&P Global Composite PMI

Also, the ANZ-Indeed job ads average increased to 4.4% in January 2026, but remains in a long-term downtrend.

Australia: Job Ads

However, aggregate monthly hours worked grew by 1% over the 12 months to December 2025, suggesting low real GDP growth in the year ahead.

Australia: Aggregate Hours Worked

Over the same 12 months, credit and broad money grew at rates of 7.6% and 7.2%, respectively. The wide margin of more than 6.0% between credit/money growth and actual hours worked suggests strong underlying inflationary pressures.

Australia: Credit and Broad Money Growth

The ASX 200 shrugged off the rate increase, respect of support at 8800 signaling another test of 9000.

ASX 200 Index

The large ASX 200 Financials index indicates increased buyer interest, with a higher Trend Index trough.

ASX 200 Financials Index

The ASX 300 Metals & Mining index continues in a strong uptrend, and recovery above 8000 would indicate a fresh advance, with a short-term target of 8750.

ASX 300 Metals & Mining Index

Conclusion

The RBA faces a dilemma.

On the one hand, economic growth is slowing. Aggregate monthly hours worked grew just 1.0% in 2025, while real GDP growth slowed to 0.4% in the third quarter.

Australian Real GDP Growth

On the other hand, inflation is rising due to high government spending, loose monetary policy, and high immigration, crush-loading the housing rental market.

Hiking rates will further slow the economy, but the central bank is already late in tightening monetary policy and will need to hike aggressively to bring inflation back under control.

For now, the stock market shrugged off the rate increase. However, the RBA will need to inflict some pain to achieve its goal.

Acknowledgments

ABS: Monthly CPI
ABS: Labor Report
Trading Economics: Australian GDP Annual Growth Rate
Trading Economics: S&P Global Australian Composite PMI

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

July 5, 2025

US Market Leading Indicators

The gauge on the left indicates bull or bear market status, and the one on the right reflects stock market drawdown risk.

Bull/Bear Market

The Bull/Bear indicator remains at 60%, with two of five leading indicators signaling risk-off:

Bull-Bear Market Indicator

The declining Fed Funds target rate indicates monetary easing, a bearish sign for the economy, while the University of Michigan survey of current economic conditions also warns of recession. However, the other two composite indicators are bullish: the Chicago Fed index of national financial conditions signals strong liquidity, and S&P 500 smoothed momentum remains positive.

In June, employment in cyclical industries—manufacturing, construction, transportation, and warehousing—grew by 10K.

Cyclical Employment Growth

Unemployment declined to 4.1%, but weekly continued claims are trending upward, warning that the labor market is deteriorating.

Continued Claims & Unemployment Rate

Also, aggregate hours worked declined in June, with year-on-year growth slowing to 0.8%. GDP growth is likely to follow.

Aggregate Hours Worked

Stock Pricing

Stock pricing increased to 97.44, compared to a low of 95.04 eleven weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

The S&P 500 PE ratio is based on highest trailing earnings to eliminate distortions caused by sharp earnings falls during recessions. The current value of 28.5 is close to the 97th percentile of readings over the past fifty years.

S&P 500 PE of Highest Trailing Earnings

Conclusion

We are in the early stages of a bear market, with the bull-bear indicator at 60%. However, extreme stock pricing increases the risk of a significant drawdown.

Acknowledgments

Prof. Robert Shiller: CAPE 10 Data
S&P Global: S&P 500 Sales and Earnings Estimates
University of Michigan: Survey of Consumers
Federal Reserve of St Louis: FRED Data
Bureau for Economic Analysis: Motor Vehicles Data

Notes

See Managing Risk to learn more.
See Bull-Bear and Stock Valuation for more on our composite market indicators.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

November 29, 2023November 30, 2023

Fed stealth liquidity may presage early rate cuts

Commercial bank cash assets, representing reserves held at the Fed, reversed its down-trend after September 2022 — when the UK gilt crisis occurred — and is now edging higher, reflecting stealth liquidity support from the Fed and Treasury.

Commercial Bank Reserves

Fed QT is reducing liquidity at the rate of $95 billion per month but the effect of discount lending and reduction of RRP facilities means that net liquidity is increasing.

The diagram below, from Cross Border Capital, shows how Fed and Treasury actions affect money market liquidity. The Fed injects liquidity by buying securities (QE) and discount lending to banks (including the Bank Term Funding Program introduced in response to the SVB crisis in March). It withdraws liquidity via sales of securities (QT) and reverse repo (RRP) borrowings (mostly from money market funds). Treasury can also reduce liquidity by increasing its TGA account at the Fed — when taxes and net debt issues exceed spending.

Money Market Liquidity

Low corporate bond spreads confirm that credit is readily available in the bond market.

Moody's Baa Corporate Bond Spreads

Coincident economic indicators indicate that the economy is gently slowing, rather than contracting.

Coincident Index

Declining growth in aggregate hours worked suggests that the Fed and Treasury have succeeded in manufacturing a soft landing — despite high interest rates — by providing liquidity support.

Estimated Aggregate Non-Farm Weekly Hours Worked

So far, this has worked but high short-term interest rates are attracting retail investors to money market funds, bypassing the banks.

Retail Money Market Funds

Low bank deposit growth is likely to cause a contraction of bank credit, as in November below, as smaller regional banks struggle to fund credit growth.

Commercial Bank Loans & Leases

More than 20% of banks are tightening credit standards and widening credit spreads. That normally indicates a recession.

Domestic Banks Tightening Credit Standards & Widening Spreads to Small Firms

Conclusion

The Fed and Treasury are providing sufficient liquidity to financial markets to avoid a contraction. Larger borrowers have ready access to credit through the bond market but small to medium-size enterprises — who borrow mainly from regional banks — are likely to find credit difficult to obtain as smaller banks struggle to compete with money market funds for deposits.

The Fed may be forced to cut rates if this continues — to ensure that small- and medium-sized businesses have sufficient access to credit ahead of the November 2024 elections.

Acknowledgements

Cross Border Capital @crossbordercap for the Money Markets diagram
Wolf Richter for the retail money market fund graph

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.