Washington, DC (Thursday, April 23, 2015): Gross Output, a broader measure of U. S. economic activity published by the Bureau of Economic Analysis, grew much more slowly in the 4th quarter of 2014, confirming a slowdown in the economy into 2015. According to today’s BEA release, real GO advanced at an annualized rate of only 2.6% to $31.4 trillion by the end of 2014, half the rate of the 5.2% jump in the 3rd quarter.
Gross Output (GO) is a measure of sales or receipts of all industries throughout the production process, including business to business transactions (B2B). Most B2B activity is left out of GDP statistics.
Since the financial crisis of 2008-09, GO has risen faster than GDP, and that continued to be the case in the 4th quarter. GO advanced at a slightly faster pace than GDP. Gross Domestic Product (GDP), which measures the value of final goods and services only, rose 2.2% in real terms to $17.7 trillion in the fourth quarter. The fact that GO is still growing faster than GDP suggests that the economic recovery is still in place, and a recession is unlikely.
Business Spending (B2B) Slows
B2B activity also continued to slow into 2015. According to the new Skousen B2B Index, business spending increased at a lower annualized rate (2.5%) compared to the 3rd quarter. See the chart below.
“The GO data and my own B2B Index demonstrate that total US economic activity has slowed significantly, but not enough to cause an actual recession,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain.”
Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out a big part of the economy, business to business transactions in the production of intermediate inputs,” he notes. “GO includes most B2B activity that is vital to the production process.”
Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990, new third edition forthcoming in July, 2015). Now the BEA publishes GO on a quarterly basis in its “GDP by Industry” data, the first aggregate statistic to be published on a quarterly basis since GDP was introduced in the 1940s.
“Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually less than 40% of economic activity, not the 70% figure that is reported by the media.”
According to the Skousen B2B (business to business) Index, total business spending throughout the production process reached $23.0 trillion in the 4th quarter 2014, compared to personal consumption expenditures of $12.1 trillion. “Thus, we see that business spending is almost twice the size of consumer spending in the US economy,” concludes Skousen.
Note: Ned Piplovic assisted in providing technical data for this release.
For More Information
The GO data released by the BEA can be found at www.bea.gov under “Quarterly GDP by Industry.” Click on interactive tables “GDP by Industry” and go to “Gross Output by Industry.” Or go to this link directly: http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=51&isuri=1&5114=q&5102=15
For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:
Mark Skousen, “At Last, a Better Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM
Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”: http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/
Mark Skousen, Forbes Magazine (December 16, 2013): “Beyond GDP: Get Ready For A New Way To Measure The Economy”: http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/
Steve Hanke, Globe Asia (July 2014): “GO: J. M. Keynes Versus J.-B. Say,” http://www.cato.org/publications/commentary/go-jm-keynes-versus-j-b-say
# # #