About Mark Skousen

Mark Skousen is a professional economist, university professor, best-selling author, editor of the award-winning Forecasts & Strategies financial newsletter, and producer of FreedomFest, the largest annual gathering of free minds about liberty and freedom in the world. Skousen has been married to wife Jo Ann for 42 years, and has five children and five grandchildren.

If GDP Lags, Watch the Economy GO

April 26, 2018 By Mark Skousen Leave a Comment

‘Gross output’ reflects the full value of the supply chain, and it portends much faster growth.

Reprinted from THE WALL STREET JOURNAL.

By Mark Skousen

The Bureau of Economic Analysis will release its preliminary first-quarter growth figure on Friday. According to the Atlanta Fed consensus tracker, economists are predicting gross domestic product to have risen at a meager 2% annual rate. But a powerful behind-the-scenes indicator suggests the real rate may turn out to be significantly higher.

“Gross output,” or GO, reflects the full value of the supply chain—the business-to-business spending that moves all goods and services toward the final retail market. Based on my work and research by David Ranson, chief economist at HCWE & Co., changes in the supply chain are a strong leading indicator of the next quarter’s GDP.

The supply chain, which the BEA calls “intermediate inputs,” took off in the fourth quarter of 2017, growing at a 7.5% annualized rate. That’s more than double the rate of real GDP growth and the fastest pace since before the Great Recession. Real GO, which includes both GDP and the supply chain, rose at a 4.7% rate. The growth was broad-based, with strong numbers in mining, manufacturing, utilities and construction. The fourth quarter 2017 GDP growth rate of 2.9% did not reflect the dramatic increases in intermediate outputs because GDP by definition measures only spending at the end of the economic chain.

The GO model is more in keeping with the Conference Board’s list of 10 leading economic indicators, which are linked to manufacturing and capital markets. For three quarters in a row in 2017, GO accelerated, probably due to the anticipated tax breaks and deregulatory environment. The boom in intermediate business activity should translate into higher economic growth soon, barring international instability, trade wars, or tighter-than-expected monetary policy.

As I noted in these pages in 2014, measuring gross output is a breakthrough in national income accounting. By reporting GO as well as GDP, the BEA has helped economists catch up with the accounting and finance professions. Public companies have long reported the top line (revenue) and the bottom line (profit) at the same time each quarter. For a national economy, GO corresponds to the top line (total activity) and GDP to the bottom line (final product). As the economists Dale Jorgenson, J. Steven Landefeld and William Nordhaus wrote in a 2006 book: “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

GO also dispels the popular Keynesian myth that consumer spending is the driver of economic growth. For example, the New York Times recently warned: “With personal consumption accounting for nearly 70 percent of all economic activity . . . the administration will be hard pressed to lift growth substantially if consumers remain cautious about opening their wallets.” But GDP is an incomplete measure of economic activity. It overlooks the value of all goods-in-process, which amounted to more than $14.7 trillion in 2017.

The broader-based GO highlights the reality that business spending is actually substantially larger than consumption. Consumption is 69% of GDP but just 39% of GO, while business spending is 17% of GDP but 52% of GO. This model therefore better recognizes the vital contributions of entrepreneurship, capital investment and innovative technology. As Larry Kudlow, the new director of the National Economic Council, wrote in 2006: “It is business, not consumers, that is the heart of the economy. When businesses produce profitably, they create income-producing jobs and thus consumers spend. Capital formation is the key to worker productivity and consumer prosperity.”

The first-quarter 2018 GO release won’t come until July 20, but BEA director Brian Moyer says the agency plans to release both GO and GDP at the same time within the next year or two. Hopefully by then the media will catch on to this advance in supply-side national accounting and leading indicator of robust economic performance.

This article appeared originally on wsj.com and in the April 24, 2018, print edition of the Wall Street Journal.

About the Author

Mark Skousen is a Presidential Fellow at Chapman University. He introduced gross output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990).

GO Slow: New Leading Indicator Predicted Slowdown in GDP

January 26, 2018 By Mark Skousen Leave a Comment

by Mark Skousen

Presidential Fellow, Chapman University

Editor, Forecasts & Strategies

For the previous two quarters (Q2 and Q3, 2017) Gross Output, the new broader measure of the economy that includes the supply chain, was growing at a slower rate than GDP. According to my research, that suggested a slowdown in GDP.

Today the Bureau of Economic Analysis released the advance estimate for Q4 2014 GDP. After two consecutive quarters (Q2 & Q3) of 3%-plus growth in real terms, the GDP grew only 2.6% in Q4 — just as GO predicted.

For some time now, I’ve been arguing that gross output (GO), the top line in national income accounting, is a more accurate measure of total economic activity. Because it includes business-to-business (B2B) transactions in the earlier stages of production, GO can anticipate changes in GDP (the bottom line) as much as 12 weeks in advance.

Since the first quarter of 2017, GO has been growing at slower rate than GDP. In Q2, real GO rose at a tepid 1.7%, substantially less than 3.1% for GDP, and in Q3 2017, real GO accelerated at 2.7% growth rate, but still less than the 3.1% real GDP growth for the 3rd quarter. I concluded in November, “Second quarter GO suggests potential slowdown in the economy, despite the currently rising GDP.” Please reference the 2017 Q2 and 2017 Q3 press releases for more information.

The following chart provided by David Ranson, chief economist at HCWE & Co., shows the relationship between GO, II and GDP since the third quarter of 2016.

Data: Quarterly seasonally-adjusted chain-type quantity indices of intermediate inputs, gross output and gross domestic product (Bureau of Economic Analysis).

As David Ranson comments: “In this chart we compare the growth of gross output (GO) and intermediate output (II) with the growth of GDP over the past year (all in real terms). The chart begins with the third quarter of 2016 because, prior to that, all three variables were moving in close parallel. At that point a substantial divergence opened up, as the growth of intermediate output (and GO) raced ahead of GDP growth. That implied an acceleration in GDP growth which we have been experiencing. Now, just-released third-quarter figures for GO and II suggest that a re-convergence has begun: in the second and third quarters of 2017 growth in GO and II has fallen below the growth rate of GDP. That implies that GDP will stabilize and possibly decelerate later in 2018.”

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 Way to 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

David Ranson, “Output growth data that the economy generates months earlier than GDP,” Economic Watch, July 24, 2017. HCWE, Inc. http://www.hcwe.com/guest/EW-0717.pdf

Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015: http://journal.apee.org/index.php?title=Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.

2ND QUARTER GROSS OUTPUT SHOWS SURPRISE SLOWDOWN IN ECONOMY

November 2, 2017 By Mark Skousen 2 Comments

Washington, DC (Thursday, November 2, 2017): Gross output (GO), the top line of national accounting and a leading economic indicator, grew at a slower pace than GDP in the second quarter 2017, indicating a sudden slowdown in economic activity. Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University, states, “My research shows that whenever GO grows slower than GDP, it suggests a potential decline in economic growth and if this trend persists, a recession could follow. While GO grew at a slower pace, there is no still no evidence of a recession.”

Based on data released on Thursday, November 2, 2017 by the BEA and adjusted to include all sales throughout the production process, nominal adjusted GO (GO*) increased at an annualized rate of 2.9% in the second quarter of 2017, which is significantly lower than the previous quarter’s increase of 6.0%^[1]. Nominal adjusted GO for the second quarter of 2017 grew at slower pace than the 4.0% nominal GDP growth and the 3.6% growth of the unadjusted GO reported by the BEA.

Real GDP, the bottom line of national income accounting, rose at an annualized rate of 3.1% in the second quarter 2017. Real GO* generally grows at a higher rate than real GDP during an economic expansion. However, in Q2 2017, real GO* grew at only 1.7%.

Skousen states, “By focusing solely on final spending and the end of the economic chain, GDP can sometimes be a misleading indicator of economic performance. GO is a much better, more comprehensive view of total economic activity along the entire supply chain, and indicates a less positive outlook right now.”

In fact, according to a recent study by David Ranson, chief economist at HCWE & Co., GO anticipates changes in GDP by as much as 12 weeks in advance and thus serves as a new leading indicator: http://www.hcwe.com/guest/EW-0717.pdf

Skousen B2B Index Also Slows Dramatically

The Skousen B2B Index, a measure of business spending throughout the supply chain, increased at 2.6% in Q2, which is significantly less than the 8.1% growth rate from the previous quarter. This is the first slowdown after four consecutive quarters of strong B2B growth of 5% or more. In the second quarter, B2B transactions rose at an annual rate of 1.4% in real terms.

After four quarters of strong growth, the adjusted GO rose at slower pace, but still increased to reach $41.27 trillion. The current adjusted GO is more than double the size of GDP ($19.25 trillion), which measures final output only.

Supply Chain Activity Continues Increasing, But at a Slower Pace

Out of the 29 Industries and sectors defined within GO, 26 sectors rose compared to the previous quarter. The mining sector grew 8.3% in the second quarter 2017, the most of any sector, but this was relatively small compared to the 62.7% annualized growth in the first quarter 2017. Moreover, the mining sector accounts for just 1% share of total GO, which diminishes the impact of this small increase on the overall GO. In contrast, the manufacturing sector is almost a fifth of total GO (18% share). Therefore, the 1.2% annualized growth of the manufacturing sector has a much greater impact on the total GO. With a 2.6% annualized growth rate, durable goods outpaced non-durable goods, which fell 0.2% compared to the previous quarter.

Another sector with an 18% share of GO is the finance, insurance, real estate, rental and leasing sector. In the second quarter, this sector grew at a 7.0% annualized rate in nominal terms, which is higher than the 6.7% increase in the first quarter 2017. The finance and insurance subsector, which accounts for 8% of total GO by itself, rose 11.1%.

Compared to the previous quarter, spending fell significantly in only two sectors. The largest drop of 4.8% is in the agriculture, forestry, fishing and hunting sector. The Construction sector was down 5.7%. The aforementioned non-durables sector and the accommodation and food services sector were virtually flat with no change to the previous quarter. These four sectors combined account for a 17% share of the total GO. Therefore, the negative performance of these few sectors had a noticeable impact on the overall GO growth.

The other surprise in 2nd quarter GO was the dramatic slowdown in wholesale and retail trade. Compared to Q1, total retail trade rose only 0.3% and the Wholesale trade actually fell a marginal 0.1%.

Total government spending (11% share of total GO) increased 2.9% in the second quarter. This growth rate is marginally lower than last quarter’s 3% growth rate. The federal government grew at an annualized rate of 2.2% in nominal terms and state and local government grew at a slightly higher rate of 3.2%.

GO and GDP are “Top Line” and “Bottom Line” of National Accounting

Gross output (GO) and GDP are complementary statistics in national income accounting. GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement. In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.

Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (gross profits) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO has continued to grow faster than GDP (most of the time) is a positive sign.

Business Spending (B2B) Grows Slower Than Consumer Spending

We have also created a new business-to-business (B2B) index based on GO data. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity increased 2.6% to $23.67 trillion. Meanwhile, consumer spending rose to $13.3 trillion in the second quarter, which is equivalent to a 3.5% annualized growth rate. In real terms, B2B activity rose at an annualized rate of 1.4% and consumer spending rose 2.5%.

“B2B spending is a pretty good indicator of where the economy is headed, since it measures business spending along the entire supply chain,” stated Skousen. “The fact that business activity has slowed down in the 2^nd quarter is a bit surprising, given the pro-business legislation is that expected to become law soon.”

About GO and B2B Index

Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015, and is now available on Amazon.

Click here: Structure of Production on Amazon

The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s.

The BEA now defines GDP in terms of GO. GDP is defined as “valued added,” that is, “the value of the goods and services produced by the nation’s economy [GO] less the value of the goods and services used up in production (Intermediate Inputs or II].” See definitions at https://www.bea.gov/newsreleases/industry/gdpindustry/gdpindnewsrelease.htm

With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”

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=3&isuri=1&5102=15

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the new website, www.grossoutput.com (still in development), as well as the following:

Mark Skousen, “GO Beyond GDP: Introducing Gross Output as the Top Line in National Income Accounting,” presented as the 2017 Schumpeter Lecture in Stockholm, Sweden, sponsored by the Swedish Entrepreneurship Forum: http://entreprenorskapsforum.se/wp-content/uploads/2017/10/PS_Skousen_web.pdf

Mark Skousen, “At Last, a Better Way to 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

David Ranson, “Output growth data that the economy generates months earlier than GDP,” Economic Watch, July 24, 2017. HCWE, Inc. http://www.hcwe.com/guest/EW-0717.pdf

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.

# # #

[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2017 2^nd quarter is $33.2 trillion. By including gross sales at the wholesale and retail level, the adjusted GO is $41.27 trillion in Q2 2017. Thus, the BEA omits $7.8 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

GROSS OUTPUT AND B2B INDEX ADVANCE SHARPLY AFTER ELECTION

April 21, 2017 By Mark Skousen Leave a Comment

Washington, DC (Friday, April 21, 2017): Gross output (GO), the top line of national income accounting, increased sharply and much faster than GDP in the fourth quarter 2016, indicating a robust economy for 2017. “Whenever GO grows faster than GDP, it’s a good sign of economic recovery,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University who has long championed GO as a vital macro statistic.

Moreover, the Skousen B2B Index, a measure of business spending throughout the supply chain, skyrocketed in the fourth quarter, indicating a sharp recovery in business activity following the November presidential election of Donald Trump. B2B transactions rose at an annual rate of 8.4% in the fourth quarter, 5.8% in real terms, the faster rate in years.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, nominal adjusted GO (GO*) increased at an annualized rate of 6.2% in the fourth quarter of 2016, which is 30% higher than the growth rate in the previous quarter [1]. Nominal adj. GO for the entire year (2016) advanced 4.1%, or 2.4% in real terms, substantially faster than GDP.
Nominal GDP, the bottom line of national income accounting, rose at an annualized rate of 4.16% in the fourth quarter, slightly lower than the growth rate from the third quarter. For the entire year (2016), nominal GDP advanced 3.9% or 2.1% in real terms.

Adjusted GO reached $40.6 trillion and exceeded the $40 trillion mark for the first time ever. In the fourth quarter, the Adjusted GO was more than double the size of GDP ($18.87 trillion), which measures final output only.

It is not just that the total economy is showing signs of growth. Industries in the early stages of production, which tend to be leading economic indicators, expanded at a higher rate than the overall economy. While the early stages of production – agriculture, forestry, fishing, hunting, mining, construction and manufacturing – accounted for a 26% share of GO, those combined sectors contributed 35% of the growth in the fourth quarter.

Supply Chain Activity on the Increase

Supply chain activity among various sectors was mostly positive, with only a few declining sectors. After reversing two quarters of double-digit declines in the third quarter, the mining sector enjoyed a 30.2% annualized increase in the fourth quarter. Utilities were down 5.5% for the quarter. The construction sector grew at a much faster pace of 7.7% in the fourth quarter when compared to a 2.57% third quarter boost.

The manufacturing sector accounts for an 18% share of total Gross output. Therefore, the sector has a significant impact on the overall performance of GO. The fourth quarter manufacturing increase of 7.6% is more than double of previous quarter’s growth rate. Another sector with an 18% share of GO is the Finance, insurance, real estate, rental and leasing sector, which rose 3.9% in the fourth quarter.

Professional and business services sector made another positive contribution and increased 4.3% for the quarter. Health care and social sciences sector reversed its decline from the third quarter and returned to the positive side in the fourth quarter with a 9.3% increase. The Retail sector and the Wholesale sector extended their growth records from the previous period with 6.6% and 8.2% increases, respectively.

Total government spending (11% share of total GO) increased slightly (+2%). This increase was driven by the growth in Local government spending, which rose by 3.3% in the fourth quarter while federal spending declined 1%.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO continued to grow faster than GDP is a positive sign.

Business Spending (B2B) Grows Faster Than Consumer Spending

We have also created a new business-to-business (B2B) index based on GO data. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity increased 8.4% to $23.3 trillion. Meanwhile, consumer spending rose 5.5% to $13 trillion in the fourth quarter. In real terms, B2B activity was up 5.8% and consumer spending increased 3.4%.

“B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain,” stated Skousen. “There is no doubt that business activity has picked up in expectation of pro-business legislation in 2017.”

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy. GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”
Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015, and is now available on Amazon.

Click here: Structure of Production on Amazon
The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s.

The BEA now defines GDP in terms of GO. GDP is defined as “the value of the goods and services produced by the nation’s economy [GO] less the value of the goods and services used up in production (Intermediate Inputs or II].” See definitions at https://www.bea.gov/newsreleases/industry/gdpindustry/gdpindnewsrelease.htm

With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

For More Information

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

New: Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015: http://journal.apee.org/index.php?title=Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.
________________________________________
[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2016 4th quarter is $32.8 trillion. By including gross sales at the wholesale and retail level, the adjusted GO is $40.6 trillion in Q4 2016. Thus, the BEA omits $7.8 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

A Tribute to Richard Russell

November 25, 2015 By Mark Skousen 2 Comments

Mark Skousen (left) and John Mauldin (right) present Richard Russell with a copy of “Fifty Years of Wall Street”

Richard Russell (1924-2015), legendary publisher of the Dow Theory Letters since 1958, passed away on Saturday, November 21 at the age of 91. Due to heart disease, he stopped speaking at investment conferences, but continued to write his daily commentary into his nineties. My friend Van Simmons and I visited him and his wife Faye at his home and gardens in La Jolla. When Mohammed can’t come down from the mountain, you have to go up to the mountain.

In 2009, I arranged with John Maudin to put together a special “Fifty Years of Wall Street” book of his writings for his 50th anniversary celebration of his “Dow Theory Letters.” The book also contained tributes from dozens of friends and fans over the years (see below). It was the last time I saw him. His insights will be missed. He was truly one of the founders of the newsletter business and one of the original gold bugs. We will dedicate a room to him at next year’s FreedomFest.

He was famous for his technical system of the Dow theory that determined whether the stock market was in a bull market or a bear market, and his newsletter always had a box in each issue with either a bull or a bear in the box (his last issue had a “bear” in the box). His most famous quote, “In a bear market, the winner is he who loses the least,” is one of my favorites and can be found in “The Maxims of Wall Street” (page 100).

Tributes to Richard Russell (2009)

Richard: You are my hero. I stand amazed at your ability to see through the fog of the markets so clearly for over 50 years, to maintain a calm and steady demeanor in the times of turbulence and to hold the hands of your legions of followers. You are a comforting presence in times of stress and a true friend to all of us who consume your wisdom. Thank you for all you have meant to so many over the years. And I hope one day to match your record of writing in what will soon be seven different decades. And I look forward to reading you and remaining your friend as you start your eighth in another ten years! Truly, life and health to you and Faye. — John Mauldin

Hail, fellow schoolmate! I have read and admired your work over more years than probably either of us can remember. You are original, serious, fun, illuminating, fascinating, stubborn, realistic, pioneering, and honest. That is only a partial list, but you will want to time left to read greetings from other admirers. Long may you wave, because we all need you. — Peter Bernstein

I cannot get enough of Richard Russell. I began reading him as an intern after my sophomore year of college and became hooked. I would sit at my computer watching the clock until his letter was posted. His letter is unique as well as personal. Thank you for everything you do and keep it up. –Steven Aldridge

Thank you, Richard, for all of your hard work. Please keep writing as long as you wish. In the meantime, keep training your son to fill in some day in the very distant future. Again — thank you Richard! –J Harrison Beal

As a long-time subscriber, I have been fortunate enough to learn from your thoughts not only about the market, but life in general. I especially appreciate the picture you sent me standing in front of a model B25 plane. My wife also reads your letter and we wish you well. – Myron Berkson

Every time I contemplate a move in the market, I pause first to listen in my head to Richard’s warnings, advice and wisdom. I have never regretted decisions based on his influence. I have enjoyed just as much, his comments and anecdotes on non-financial matters, from politics to stories of the war. I am nearly as old as he is and I remain in awe of the effort I know it takes to talk to us every day. – Dr. Virginia Biddle

Dick, I remember visiting you in your apartment on Lexington Avenue in 1958 after your article in Barron’s. We had a nice chat and I was very impressed. I have been a reader of Dow Theory Letters ever since and it has greatly influenced my investment career and results. Thank you very much. -Gene Brody

What a legacy! You have literally saved people financially as well as brought wisdom and cheer to their lives. You are terrific! – David Cantwell

We have never met, but I’ve been an admirer and, to some extent, imitator for many years. Before I begin writing, every morning, I read you to get the perspective of the “old timers” — people who really know what they are talking about. After all these years, I still don’t really understand Dow Theory. As you say, the market can do what it wants. Even after you ‘put the bear in the box’ stocks can still go up! To me, Richard Russell’s Dow Theory may not always work in theory, but works in practice. Your long experience at trying to read the “language of the market,” has made you as fluent as anyone still alive. I rely on you to translate for me…to help me understand what is going on. I just hope you keep at it at least until I retire. — Bill Bonner

When I was 10 years old, my Dad insisted that I start reading Dow Theory Letters. The year was 1970. I didn’t understand a word of it except for the stories in the Notes and Quotes section that kept me reading. I owe Richard an immeasurable debt for the knowledge he has giving about life and the markets. Thank you from me, my family and all of the people we passed your letter to over the years. Took a position in Gold in 2000 and am still riding the bull. Wha Hoooo! – David Carpenter

I first subscribed to Dick’s letter in the 70’s, and even today I can remember his observations. More than observations– genuine wisdom. I’ve never seen him miss a major turn of the market. Dick, I truly have the utmost professional, and personal, respect for you, and what you’ve accomplished. – Doug Casey

Loyal reader for more than 20 years. Richard, you have kept me out of serious trouble in the market over the years. And tipped me early to salting away some gold. I could never thank you enough. – Eric Ether

Richard, YOU sparked my financial life and got me thinking about how the world REALLY turns. I first discovered and subscribed to your letter in 1972, sold my house and bought gold and silver with the proceeds. Your advice strongly influenced my decision to buy silver at $1.72 per ounce and gold at $58.17 an ounce. You might remember that by 1974 you couldn’t give a house away in San Diego, wage and price controls, and 18 ½ percent interest rates. Did you know what you were talking about back then? You bet you did! And, Richard, you still have what it takes! Congratulations for your unequaled perspicacity and longevity in this difficult business. May you continue to receive all that you rightfully deserve. –Robert Cederhal

I was passed to Russell’s Letter by Martin Zweig when he quit. Best thing he did for me! – Ralph Condit

My husband, who died of melanoma in 1979, introduced me to Dow Theory Letters in 1970. I have been reading them since 1973. Richard Russell is like family to me. I reveled in each revelation of his life and character as he kept my financial mind stable and stimulated. I have not always done what he advised, but always took his advice under consideration. I love him. –Frederika Cornell

Thank you for the privilege to meet you in person, after having spent countless hours in the company of your thoughts. Thank you for making me aware of the wave and the idea as opposed to being knocked about by the ever-unpredictable gusts of air in the market. Thank you for the peace of mind that goes with contemplating value, rather than the anxiety of watching prices. Thank you for sharing wisdom rather than pushing a sales line. Thank you for the privilege to log on every evening at 11 pmin my home in Holland for a moment of refection and learning. Good Health and Good Luck. -Ton Coumans, Amsterdam, theNetherlands

The integrity, the experience, and the wisdom always shines through. - Adrian Day

Best interpreter of the Dow Theory who ever lived. Thanks for the money you have made for me including your 12/74 call of the end of the bear market. – Kenneth Dorking

First, I will be forever grateful to Julian Synder who quit publishing “International Moneyline” and got Richard Russell to take on his old subscribers! Richard Russell has saved my financial life, but more importantly than money, Richard has shared his personal life with me. What a wonderful, creative, and beautiful chronicle of this man’s experiences during his extraordinary lifetime. – George Finley

About eight years ago on a vacation in Italy, we came across an interesting looking cactus. I remembered Richard’s interest in cacti and so took a photograph and e-mailed it to him. He recognized the type of cactus right away and responded with the name of the type. I am a recently retired portfolio manager here in Canada and Richard’s “top-out parade” in 1999 or 2000 alerted me to the impending market correction and saved my clients a great deal of money. – Deborah Frosst-McInnes

Across the electronic divide there are mental bridges that connect us all. Your words have often facilitated that bridging. I have sometimes disagreed with you, but have always enjoyed your words and they have always been great value. You are significant mortar in this vast collection of human bricks. A mere thanks is not enough… – Douglas Graham

I have learned more from Richard Russell, than I did from the combined group of teachers I had in school. Since 1991, I have rarely missed a word he has written. Of course it has influenced my own thinking and writing. I am eternally grateful for the knowledge and pure entertainment of his work! It has been a true blessing in my life! – Craig Griffin

My grandfather, a WWII veteran, was an original subscriber in the 60’s until he passed away in 2003. My father has been a longtime subscriber and I started reading the Dow Theory Letters over his shoulder when I was working for him after college. I now have 3 kids and have been a subscriber for 10 years. My husband and I are probably the only ones in our circle of friends who read daily about the markets and most certainly the only ones who have owned physical gold since it was in the 200’s. Thank you Mr. Russell! - Nancy Grimes

Cactus Stamps, and his great call on the start of the stock bull market in 1974, and his other on the great gold bull market in 2001. -Robert Hall

Richard has been very influential in my life. He pointed out to me the critical link between sound money and liberty. There’s far more at stake here than just our bank accounts. - Michael Huebner

I am just one of his legions of fans. –Terry Hughes

Richard is the father I never had. The shining light in a dark night. May his work live on forever. – Edward Hummel

A subscriber since 1958. Thanks for making several million dollars over a span of 51 years. We Love You. –Gordon Jenkins

I have followed Richard for 30 years. His consistency, perception, intuition, humor and humanity have been a daily privilege to experience. – Tyler Jenks

I’m 54 years old and have been reading Richard for about 10 years now. Richard has become my mentor and my adopted financial father figure – since my own dad (also a WWII vet and B17 tail gunner) did not teach me about markets and finance. Richard has also passed down some valuable life-lessons that I’ve tried to incorporate into my own life. I love his personal writing style and you really get the feeling he cares about his subscribers. Thanks Richard! - Chris Kokinakes

Have been a subscriber since 1980 to the Dow Theory Letters (except for one 6 month break in the late 80s). My dad was flight engineer/top gunner on B-25 Mitchel in WW2 and so I shared the war stories/comments with my dad (who told me to correct Mr. Russell that the B-25 engines were “Wright Radials” not “Pratt & Witneys”). Prior to receiving the daily DTL by email, I treasured each biweekly hard copy of the DTL and when it came in the mail I would carefully put it in my back pants pocket and save it to read in the most serene or exotic locale I was going to be at in the next couple days. I\’ve read the DTL from the bottom of the Grand Canyon to the top of the Swiss Alps, on planes, trains, helicopters and even a submarine! - Richard Lane

Read Richards letter every day he posts it. Bless his heart, may he live to be as old as he wishes. – James Langell

We’ve never met, but he’s almost a friend, after reading him for so many years. Not many could achieve this with subscribers.-Frederick Lehmann

You have been an inspiration and financial mentor for whom my family and I will be forever grateful. – Terrance Macho

Mr. Russell’s newsletter has made fortunes for me and my company, and his writing has always entertained and informed. – Steve Mathews

When I started Deliberations in 1972, Richard often used my charts and quoted my work to help “put me on the map” as he did unselfishly for many new letters. I’m also a happy user of EDTA Chelation with great success in part due to his ongoing promotion of it. Haven’t seen him in many years, and relish this opportunity to say thank you to a great guy. – Ian McAvity

Was introduced to the remarkable market analysis of Richard Russell many years ago by Kennedy Gammage and his Richland Report. –Sherman McClellan

How I appreciate all the passion, wit, and brilliance of this wonderful man. –Ruth Neuman

For quite a few years now I’ve had the pleasure of reading your pieces, first bimonthly and then daily, and absorbing the wisdom contained in your writings. You have enriched my life beyond measure, and for reasons beyond financial enrichment, as valuable as your advice has been in that regard. For all of this I thank you so much! Warmest regards from a loyal and devoted reader. -David Nicoli

Richard’s unique perspective on the markets is greatly appreciated, but what makes him stand out head and shoulders above the crowd is his integrity and ability to be frank and forthright. –Leonard Oppenheim

I encountered Richard’s writings a few years ago and pretty much immediately signed up to subscribe. Not only does his writing combine experience with perspicacity, his work exudes a humanity that is humbling and inspiring. We are lucky indeed to have his voice at this as we confront the vicissitudes of fortune. Thank you for your great service. – Xavier Porterfield

He teaches difficult concepts with enviable lucidity — a great teacher. -Mike Roizen

He taught me the meaning of the word greenspan – Jeffrey Schwartz

I have enjoyed reading Dow Theory Letters since my early days as a young private banker in La Jolla. I was introduced to the letters by a client and, from them, fairly quickly came to realize that the housing market then was overbought. We sold our first home in 1990, after thirteen months of working nights and weekends on that house and after many tears from Mrs. Shinsky when the prospect of selling was raised. She fairly quickly concurred after viewing the supporting evidence (…what a blessing she is!). Because of that decision, we were able to remain on the sidelines until the market settled. We weathered a very difficult environment and remained flexible to other opportunities that have served our family well. We are forever grateful for the “pearls of wisdom” harvested from Mr. Russell’s letters. We pray for him to receive joy from the knowledge that his writings have given so much peace, and relief from anxiety, to those who have read them and acted upon them. – Stephen Shinsky

We first began reading the Dow Theory Letters in 1975. So when we met Richard Russell at a conference in the Bahamas in 1978, when he was a speaker and we were attendees, we were honored to talk to the exceptional market writer we admired so much. Over the last 30 years we’ve been proud to be his friend, and we will forever be grateful for his ongoing support. Richard has always been our favorite writer and to this day we look forward to reading his daily thoughts. We love Richard and wish him the best in health, wealth, happiness…well, in everything life has to offer for many years to come –MaryAnne and Pamela Aden

I have been reading Richard for around 2 years. He is as good as they get and has truly helped me protect myself and my Mother and Father. Dad is 82 and Mom is 72. Due to Richard, I was able to convince them to sell completely out of the stock market in April 08 and put them in cash and gold. I cannot imagine where I would be or worse yet, where they would be had we not made that move for them. They were heavy in Blue Chips and Berkshire. THANK YOU FOR ALL YOUR INSIGHT. I wait to ready your Latest Remark every day. - Christopher Snell

You always keep me looking at the big picture. I started out reading your analysis six years ago after I graduated from college. Your confidence in yourself is contagious. I become more confident in my trading with every letter you write. You’ve taught me to rely on myself and no one else; especially the government! Thank you. -Dean Somes

I’ve been reading Richard’s The Dow Theory Letters for almost five years. Each day I eagerly look forward to reading Russell’s Remarks to better understand what the “language of the markets” is saying; his daily remarks provide me with much emotional and investing support in navigating through the troubled waters of investing, particularly today. I’ve enjoyed his many anecdotes about his WWII military service, his family, his views on politics and economics and what he has learned about life. I get a big kick about the way he deals with irate readers who don’t agree with his views on politics and religion. Richard, thanks for your service, your humor, your informative and entertaining writing, and your wisdom. May you live to be over 100, as I know you want to know how things will work out! -Ralph Spencer, Jr

I want to take this opportunity to thank you again for encouragement and support in helping me establish and grow my own business. Many of our current subscribers first heard about Decision Point from Richard Russell. My sincerest gratitude and best wishes. -Carl Swenlin

An “ALL-TIME CLASSIC” guy. Have read, enjoyed and profited from his investment advice for almost 40 years as a Smith Barney broker. –John Tevenan

My thanks to Richard for the endorsement that appears on the back cover of my book. -Albert Thomas

Long-time reader. So long ago that I don’t know if his thoughts are mine or my thoughts are his. -Jon Vanderwood

12 years constant reading. –Tryon Williams

Richard, thanks to you and the Dow Theory Letters, our family is financially secure today. We listened and bought gold and silver too. There is no way we can ever repay you for what you have given us. Long life to you, Richard Russell! –Christine Wood

I worked for Richard’s CPA in 1978, and have been following him ever since. I have benefited from his advice, and enjoyed his non-financial comments as well. I am looking forward to seeing him again — the last time was when I visited him in the hospital after his heart surgery, many years ago! –Charlie La Nasa

Was not a regular reader of Richard’s, but am fully aware of his contribution to the investment community as well as San Diego. –Matthew Pavich

I remember your awesome call at the end of 1974 when everyone was scared to death…you called the bottom of the greatest stock market bear in history. People forget that the average stock on the NYSE was down 85%…this was masked by the Dow and S&P. There was blood in the streets. A few weeks before that Doug Casey and I both joke about how we sold out at the exact bottom since we were so new to the game. You have been a great force for good in a world with plenty of wrongs. You are credit to your profession and you make us all very proud. — Ken Gerbino

There are few people on this earth from who I have learned as much as I have from Richard over the years – I should say over the decades. A friend brought his newsletter to my attention in October 1974. I still remember it well because Richard was calling a bottom in the stock market, which seemed outlandish at the time. But in fact time proved that it was a brilliant call, and just one of many made by Richard. I know of no one who has been as consistently right about the market as Richard. Please wish him well for me. – James Turk

We enjoy your daily comments and wish you all the best. My father served in the army in the pacific during WWII and I served 23 years in the Navy as a pilot. Your stories of duty in the European area are excellent insights to the vast majority of younger individuals who know nothing of the sacrifices you and my dad made for this country. Thank you for all you do and keep on working as long as you enjoy it. –Angelo and Duke Brunelli

What an amazing record of accurate calls and solid advice Richard Russell has compiled for the past 50 years. He has been an inspiration to every newsletter writer and publisher I know. I’m delighted to join the legion of happy subscribers who are honoring him tonight. — W.W. “Chip” Wood

Richard Russell has the great distinction of being a legend in his own time for over 50 years. He has provided consistently sage advice for his many loyal clients, avoiding the fads and the hype of the day and concentrating on helping his clients with the difficult task of building wealth slowly and surely over time. Always level-headed, Richard imparts worldly wisdom and humanity to his readers in addition to his always thoughtful, disciplined and provocative investment advice. — Tony Boeckh, President, Boeckh Investments & Former Owner & Editor-in-Chief of The Bank Credit Analyst.

Richard, I started reading your reports I was a teenager over 35 years ago. I have much respect for what you’ve done for me as a young person learning the market in the 60’s when technical chart reading was considered at best voodoo. You have always been most gracious with your time whenever I phoned to get your perspective on market trends or chart reading. You have been an inspiration for many of my companies and helped me launch the Gold Report by providing me your insights into the markets and life. Your generosity was one of many influences for me to dedicate all profits from my winery Lookout Ridge to buying wheelchairs for needy individuals with mobility challenges world wide. — Gordon L Holmes

Just Released – Fourth Edition of “The Maxims of Wall Street”

September 28, 2015 By Mark Skousen Leave a Comment

As J. Paul Getty, America’s first oil billionaire, said, “Sound stocks purchased when their stocks are low and held for the long pull are very likely to produce high profits through dividends and increases in value.”

That quotation and 800 others are included in my classic collection, “The Maxims of Wall Street.” I took some copies with me on my recent Politics & Your Portfolio cruise to New England, and one attendee, John O’Brien of Florida, bought a copy and read it on the ship. He came up to me and said, “There’s more education in this book than with four years of college!”

Mark Skousen looks on as subscriber John O’Brien of Florida reads “The Maxims of Wall Street” on the deck of Eagle’s/FreedomFest’s Crystal Symphony cruise (New England/Canada).

“There’s more educational value in Maxims than with four years of college today,” he said.

New Fourth Edition Arrives on Thursday — at Half Price!

I’m happy to announce that we have sold out of the third edition, and I’ve gone back to press with the new fourth edition. The new edition will arrive on Thursday! It mentions more than a dozen new quotations and authors, such as this one: “The stock market takes the stairs up and the elevator down.” So true!

For 30 years, I’ve been painstakingly collecting all the wise old adages, proverbs, humor and legends on Wall Street, based on in-depth interviews with old timers, reading rare financial books and my own experiences of more than 40 years in the financial markets. They include famous lines from Warren Buffett (“If you wait to see the Robin sing, Spring may be over”)… J. P. Morgan (“Troubled waters make for good fishing”)… Richard Russell (“In a bear market, the winner is he who loses the least”)… and Steve Forbes (“Everybody is a disciplined, long-term investor until the market goes down”).

I divide the book into various categories: beating the market, diversification vs. concentration, value vs. growth, bulls vs. bears, black swan events… doomsayers and cassandras… hot tips and inside information… chartists vs. fundamentalists… taxes and tax havens… inspiring “pearls of wisdom” and even a few short stories.

The book has been endorsed by Warren Buffett, Jack Bogle, Dennis Gartman, Alex Green, Richard Band and Bert Dohmen. “Maxims” is nearly 300 pages long. The retail price on Amazon is $24.95, but my followers pay only $20 for the first copy, and all additional copies are only $10 each. All are personally autographed and mailed to you for free (I pay the postage). For all foreign orders outside of the United States, add $10 per book.

I’m offering this “half-off” deal because I know “Maxims” makes a great gift for friends, relatives, business colleagues, investors, your favorite stockbroker and money manager. Many people order a whole box (32 copies). The price of a box of books is only $300 postpaid, less than $10 each. As Hetty Green, the first female millionaire, said, “When I see something cheap, I buy a lot of it!” To order your copies at this super discount, call Ensign Publishing toll-free at 1-866-254-2057 or go to www.miracleofamerica.com/maxims.

Announcing the New Third Edition of “The Structure of Production”

September 28, 2015 By Mark Skousen 2 Comments

Federal Government Introduces a New Macro Statistic: A Triumph in Supply-side “Austrian” Economics and Say’s Law

Mark Skousen, The Structure of Production. New York University Press. Third revised edition, 2015, 402 pages. $26 paperback. Available on Kindle.

To buy the book: NYU, Amazon
Quarterly data for Gross Output can be found at the BEA site here.
For Skousen’s latest quarterly report on GO, see this.

From the cover:

In 2014, the U. S. government adopted a new quarterly statistic called gross output (GO), the most significance advance in national income accounting since gross domestic product (GDP) was developed in the 1940s. The announcement comes as a triumph for Mark Skousen, who advocated GO twenty-five years ago as an essential macroeconomic tool and a better way to measure the economy and the business cycle. Now it has become an official statistic issued quarterly by the Bureau of Economic Analysis at the U. S. Department of Commerce.

Quarterly data for Gross Output can be found at the BEA site here.

For Skousen’s latest quarterly report on GO, see this.

Since the announcement, Gross Output has been the subject of editorials in the Wall Street Journal, Barron’s, and other financial publications, analyzed in the Eastern Economic Journal, and is now being included in leading economics textbooks, such as Roger Leroy Miller’s new 18th edition of Economics Today. Economists are now producing GO data for other countries, including the UK and Argentina.

In this third printing of Structure of Production, Skousen shows why GO is a more accurate and comprehensive measure of the economy because it includes business-to-business (B2B) transactions that move the supply chain along to final use. (GDP measures the value of finished goods and services only, and omits most B2B activity.) GO is an attempt to measure spending at all stages of production.

As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in “A New Architecture for the U. S. National Accounts,” “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen states, “Gross Output fills in a big piece of the macroeconomic puzzle. It establishes the proper balance between production and consumption, between the ‘make’ and the ‘use’ economy, between aggregate supply and aggregate demand. I make the case that GO and GDP complement each other as macroeconomic tools and that both should play a vital role in national accounting statistics, much like top line and bottom line accounting are employed to providing a complete picture of quarterly earnings reports of publicly-traded companies.”

He concludes, “Because GO attempts to measure all stages of production (known as Hayek’s triangle), it is a monumental triumph in supply-side ‘Austrian’ economics and Say’s law.”

Using GO, Skousen demonstrates that consumer spending does not account for two-thirds of the economy, as is often reported in the financial media, but is really only 30-40% of total economic activity. Business spending (B2B) is over 50% of the economy, and thus is far larger and more important than consumer spending, more consistent with economic growth theory, and a better measure of the business cycle. (See chart below.)

About the Author

MARK SKOUSEN is a Presidential Fellow at Chapman University in California. He has taught economics and finance at Columbia Business School, and is a former economic analyst for the Central Intelligence Agency. He received his Ph. D. in economics at George Washington University (1977). He is the editor-in-chief of the investment newsletter Forecasts & Strategies, and author of several books, including The Making of Modern Economics.

Reviews

“Now, it’s official. With Gross Output (GO), the U.S. government will provide official data on the supply side of the economy and its structure. How did this counter revolution come about? There have been many counter revolutionaries, but one stands out: Mark Skousen of Chapman University. Skousen’s book The Structure of Production, which was first published in 1990, backed his advocacy with heavy artillery. Indeed, it is Skousen who is, in part, responsible for the government’s move to provide a clearer, more comprehensive picture of the economy, with GO.” — Steve H. Hanke, Johns Hopkins University (2014)

“The development of Gross Output is a good idea and a better measure [of economic activity] than GDP.” — David Colander, Eastern Economic Journal (2014)

“This is a great leap forward in national accounting. Gross Output, long advocated by Mark Skousen, will have a profound and manifestly positive impact on economic policy.” –Steve Forbes, Forbes magazine (2014)

“Skousen’s Structure of Production should be a required text at our leading universities.” (referring to second edition) –John O. Whitney, Emeritus Professor in Management Practice, Columbia University

“Monumental. I’ve read it twice!” (referring to first edition, published in 1990) — Peter F. Drucker, Clermont Graduate University

“I am enormously impressed with the care and integrity which Skousen has accomplished his work.” — Israel Kirzner, New York University

For Interviews or Lectures

To interview Dr. Mark Skousen or arrange a lecture, contact him at mskousen@chapman.edu, or Valerie Durham, Media Relations, 410-570-0535, or email her at vdurham@skousenpub.com.

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My Review of Jeremy Siegel’s classic “Stocks for the Long Run”

August 9, 2015 By Mark Skousen 1 Comment

Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies, by Jeremy J. Siegel.

Reviewed by Mark Skousen

In mid-February 2009, Wharton School finance professor Jeremy Siegel showed me his 200-year chart of the US stock market, and noted that every time the market fell 50% from its high, the market bottomed. The only exception: the 1929-33 Great Depression, when stocks plunged over 80%. Siegel thought that, due to Federal Reserve intervention, we would not see another Great Depression. He therefore concluded that we were close to the bottom of the bear market, and that stocks were a “screaming buy.”

Since that encounter, I have joined with those who call Jeremy Siegel the “Wizard of Wharton.” His forecast came within weeks of the bottom, all based on historical work that is clearly set forth in Stocks for the Long Run, now in its fifth edition. If there is indeed a “definitive” book on the stock market, then look no further than this one.

This magnum opus is replete with chapters on the history of Wall Street since 1802; the pros and cons of mutual funds, ETFs, futures, and options; the causes of bull and bear markets; the influence of monetary and fiscal policy on equity prices; the outlook for stocks, bonds and commodities in the face of inflation and an entitlement crisis; analysis of stock indexes, dividend yields, and price-earnings ratios; global equity markets, technical analysis, and potential ways to beat the market.

This fifth edition adds chapters on what we’ve learned from the 2008 financial crisis and behavioral finance, including insights into the stock market crash on October 19, 1987, and the “flash crash” on May 6, 2010. The overriding theme is that history matters, not only for policy makers in Washington, but for investors making the right kind of investment choices.

While there is much that echoes what we think we all know, it does not hurt get these things confirmed by a scholar of Siegel’s reputation. Most mutual fund managers fail to beat the market; dividend-reinvestment is good; compounded interest and dollar-cost averaging are winning strategies for individuals; and for most people, long-term investing beats short-term speculating.

Siegel’s research also leads to conclusions that often go contrary to conventional wisdom. For example, he shows that value stocks tend to outperform growth stocks. Investing in the latest hot technology stock is what Siegel calls the “growth trap.” His classic example is Big Oil vs Big Blue: Standard Oil, now ExxonMobil (ticker: XOM) vs, IBM (ticker: IBM).

Based on Siegel’s study of the two stocks from 1950 to 2012, IBM outdistanced Exxon in every growth category–sales, earnings, dividends, and cash flow. Big Blue’s earnings exceeded Big Oil’s by more than 3 percentage points per year. IBM was the classic growth stock, Exxon the classic value play.

Yet the oil giant proved to be the better stock to buy. “When your lockbox was opened 62 years later,” reports Siegel, “the $1000 you invested in the oil giant would be worth $1,620,000, more than twice as much as IBM.”

How come? “Valuation,” the author explains. “The price investors paid for IBM was just too high.” The lower price of the oil stock helped harness the power of dividend reinvestment. “Because Standard Oil’s price was low and its dividend yield much higher than that of IBM,” Siegel carefully notes, “those who bought its stock and reinvested the oil company’s dividends accumulated 12.7 times the number of shares they started out with, while investors in IBM accumulated only 3.3 times their original shares.” While taxes on dividends would have put a serious crimp in this record, it would have worked in the era of tax-sheltered IRA’s and 401-k’s.

The growth trap is also in evident in the selection process of the S&P 500. After tracking down the performance of the original 500 companies in the S&P index, the author finds that the original S&P 500 firms outperformed the dynamic updated index. Why? Because the new “growth” firms had already risen sharply before they were added, and the old firms had fallen sharply before they were dropped.

Siegel has this same theory to the global markets, and discovered that stock performance and economic growth often move in opposite directions. “The fastest-growing country by far, China, has had the worst returns,” he writes. “Mexico, Brazil and Argentina are among the slowest-growing countries but have generated excellent returns for investors.” Although I’m not sure about Argentina–its bolsa was either in crisis or illiquidity during large parts of the 20^th century—the general point is well-taken.

The author challenges the efficient market proponents with anomalies in the marketplace, such as the January and September effects, the small stock effect, and momentum investing. He devotes a chapter to the challenges of beating the indexes, concluding that a few strategies seem to work, such as fundamental-weighted indexes and rising dividend stocks.

Siegel offers a mixed review of technical analysis. For example, he notes that investors and money managers who used the much- touted 200-day moving average technique avoided most of the 2007-09 bear market, but paid the price when they were whipsawed in and out of the market 20 times in 2010-12

One complaint: In the chapter on derivatives, the author does not take Warren Buffett and Peter Lynch to task for calling for the outlawing of stock futures and options. Studies show that the futures and options markets have actually reduced volatility and increased liquidity on Wall Street, and serve as a useful tool to hedge positions in the marketplace.

Stocks for the Long Run challenges the dooms-sayers who predict another stock market crash and collapse in the economy. “No one,” Jeremy Siegel declares, “has made money in the long run from betting against stocks or the future growth of our economy.”

——————————————–

Mark Skousen is editor of Forecasts & Strategies, a Presidential Fellow at Chapman University, and author and compiler of The Maxims of Wall Street: A Compendium of Financial Adages, Ancient Proverbs, and World Wisdom.

Recession Ahead? First Quarter Gross Output and Business to Business Data for 2015

July 24, 2015 By Mark Skousen 12 Comments

FIRST QUARTER GROSS OUTPUT AND B2B DATA: RECESSION AHEAD?

Washington, DC (Thursday, July 23, 2015): Gross Output, a broader measure of U. S. economic activity published by the Bureau of Economic Analysis, continued to slow into the 1st quarter of 2015, confirming tepid growth in the economy and a potential recession. According to today’s BEA release, real GO advanced at an annualized rate of only 0.7% to $31.0 trillion by the first quarter of 2015, compared to 5.2% in the 3rd quarter and 2.6% in the fourth quarter of 2014. The downward trend in the economy continues. In nominal terms, GO actually fell 1.1% but price deflation was so strong that GO increased in real terms.

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 1st quarter 2015. Real GO rose slightly compared to a small loss in real GDP in the 1st quarter. Gross Domestic Product (GDP), which measures the value of final goods and services only, fell 0.2% 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, but only marginally.

Business Spending (B2B) Slows

B2B activity actually declined significantly in the first quarter. According to the new Skousen B2B Index, business spending fell 2.8% to $22.7 billion in nominal terms compared to the 4th quarter. (No B2B price deflator is available at this time, but real B2B is likely to be down slightly for the 1st quarter.) Meanwhile, consumer spending remained stable. See the chart below.

“The GO data and my own B2B Index demonstrate that total US economic activity has slowed significantly, and dangerously close to going into another 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, and it indicates continued weakness.”

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 August, 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.

“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 fell slightly to $22.7 trillion in the 1st quarter 2015, compared to personal consumption expenditures of $12.1 trillion (no change from the previous quarter). “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.

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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

For more information on Dr. Mark Skousen, visit: www.mskousen.com/online-press-kit

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Valerie Durham, Media Relations, 410-570-0535, or email her at vdurham@skousenpub.com.

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Valerie Durham

Media Relations

Skousen Publishing, Inc.

www.mskousen.com

vdurham@skousenpub.com

New Gross Output and B2B Data Confirm Economic Slowdown, But No Recession

May 5, 2015 By Mark Skousen Leave a Comment

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.

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 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

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

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Valerie Durham, Media Relations, email her at vdurham@skousenpub.com.

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