Ezra Taft Benson’s Remarks at FEE Headquarters in New York, May 1977

In 2001-02, I served as president of the Foundation for Economic Education (FEE), the oldest free-market educational institution in the United States.

When I arrive I felt at home immediately when I saw the photographs of three members of my faith who had served as members of the FEE board – Ezra Taft Benson (former Secretary of Agriculture), J. Reuben Clark, Jr. (former ambassador to Mexico), and Ernest L. Wilkinson (president of BYU).

Here is the story when Ezra Taft Benson came to FEE headquarters in May, 1977, and addressed supporters and then the board members.

Ezra Taft Benson

In May 1977 Ezra Taft Benson addressed the board of the prestigious Foundation for Economic Education (FEE), of which he had previously served on the board of trustees (as had J. Reuben Clark, Jr. and Ernest L. Wikinson).  He warned that while America had become the world’s richest nation because of free enterprise, today’s citizen was learning to depend on the state, thus jeopardizing personal freedom.

The following day he was invited by the president of the foundation, Leonard E. Read, to attend a trustees meeting.  “The first question [they asked me] was on the Church, and they never left that theme,” President Benson wrote that night, “so I spent an hour answering questions, telling them about the Church, bearing my testimony to them and telling of Church policies and my experiences in the Cabinet.”  One board member lingered afterwards and told him, “I want what you have.  When we go home, I’m going to look up your church.”

Shortly thereafter President Kimball received a letter from Leonard Read, who wrote, “Last evening we had some 160 freedom friends to hear President Benson’s lecture, ‘The Productive Base of Society.’ Imagine the audiences and lectures I have arranged during…more than 31 years as President of FEE….Well, last evening was the best of all.  Never have a witnessed such interest, approval, esteem.  This forenoon, however, even topped last evening—this being an hour’s discussion with 26 of our Trustees and many guests.  All were profoundly moved by Ezra’s economic, intellectual, moral and spiritual insights.  Among my acquaintances in this and 22 foreign nations, I have never come upon his equal.”

President Benson sent an engraved copy of the book, Meet the Mormons, and a copy of the Joseph Smith story to each trustee of the foundation.

–“Ezra Taft Benson, A Biography,” by Sheri L. Dew (Deseret Book, 1987), p. 451.

Elder Ezra Taft Benson Speaks in Communist Russia

 

Ezra Taft Benson in Russia

Elder Ezra Taft Benson Speaks at the Central Baptist Church in Communist Russia, October, 1959

 

“It was the most heart-rending and most inspiring scene I’ve witnessed.”  –News reporter

From the time he arrived, Ezra Taft Benson repeatedly requested that he be taken to visit one of the two Protestant churches in Moscow.  Finally, as his party was taken to the airport for their departure, he again asked to stop at a church.  Reluctantly, his driver swung into a narrow alley behind an old stucco building – the Central Baptist Church.  It was raining, but the chill left as the Secretary’s party entered the church which was filled to overflowing with mostly middle-aged and elderly people.  Ezra understood that Soviet citizens attended these services at some risk; anyone who looked to a career of any kind avoided the slightest suspicion of belief in Christianity.

The American group caused an immediate stir in the old church.  A newsman present described the scene: “Every face in the old sanctuary gaped incredulously as our obviously American group was led down the aisle.  They grabbed for our hands as we proceeded to our pews which were gladly vacated…Their wrinkled old faces looked at us pleadingly.  They reached out to touch us almost as one would reach out for the last final caress of one’s most-beloved just before the casket is lowered.  They were in misery and yet a light shone through the misery.  They gripped our hands like frightened children.”

Surprisingly, the minister invited Secretary Benson to speak.  Knowing there was some danger, Ezra turned to Flora and asked if she thought he should do it.  Without pause she answered, “You bet, T!”  And he made his way to the pulpit.

Never had he stood before an audience like this.  As he scanned the crowd of anxious faces, it took some moments for him to control his emotions.  These were good people, he felt immediately, subjected to a society that deprived them of unrestricted worship.  The emotional impact was almost more than he could bear.  Then he began to speak about hope and truth and love.  As he talked about the Savior and the hope of life after death, tears flowed freely throughout the church.

“Our Heavenly Father is not far away,” the Secretary promised.  “He is our Father.  Jesus Christ, the Redeemer of the World, watches over this earth…Be unafraid, keep His commandments, love one another, pray for peace, and all will be well.”

Women took out their handkerchiefs and nodded vigorously as they moaned “Ja, ja, ja!”  He looked down at one elderly woman, her head covered by a scarf and with a shawl about her shoulders, and spoke as though directly to her: “This life is only a part of eternity.  We lived before we cam here…We will live again after we leave this life…I believe very firmly in prayer.  I know it is possible to reach out and tap the Unseen Power which gives us strength and such an anchor in time of need.”  He concluded, “I leave you my witness as a church servant for many years that the truth will endure.  Time is on the side of truth.  God bless you and keep you all the days of your life.”

By this time teams were streaming down Ezra’s face.  When his entourage finally filed down the aisle, men and women waved handkerchiefs and grasped the visitors’ hands in an action that spoke more than words.  Spontaneously they began to sing “God Be With You Till We Meet Again.”  The language was foreign, but the tune and meaning were unmistakable.  The Americans entered their cars with not a dry eye among them.  Finally, a newsman broke the silence, commenting, “I believe they were the only really happy people we saw in Russia.”

“I shall never forget that evening as long as I live,” Elder Benson later wrote.  “Seldom, if ever, have I felt the oneness of mankind and the unquenchable yearning of the human heart for freedom.”  Others felt similarly.  Cynical newsmen who had complained about “going to church with Ezra” (and who had skipped out on LDS services in West Berlin) stood and wept openly.

Tom Anderson, editor of Farm and Ranch magazine, wrote, “Imagine getting your greatest spiritual experience in atheistic Russia!….The Communist plan is that when these ‘last believers’ die off, religion will die with them.  What the atheists don’t know is that God can’t be stamped out by legislated atheism….This Methodist backslider who occasionally grumbles about having to go to church, stood crying unashamedly, throat lumped, and chills running from spine to toes.  It was the most heart-rending and most inspiring scene I’ve witnessed.”

When they reached the airport, nearly all of the newsmen traveling with Ezra told him it had been the greatest spiritual experience they had ever had.

–“Ezra Taft Benson, A Biography,” by Sheri Dew (Deseret Book, 1987), pp. 342-344

10 LESSONS FOR 10-10-2020

This article was originally published on the FreedomFest Forum on October 10, 2020.

lessons

The year 2020 has been anything but a year of seeing clearly. It has been characterized by uncertainty, divisiveness, and conflicting views. In the January prediction issue of my newsletter, “Forecasts & Strategies,” I stated, “The outlook for stocks, gold and the dollar is positive as we enter 2020, but beware of a ‘black swan’ event that could derail the longest running bull market in history.” Indeed, the coronavirus not only derailed the bull market, but the entire economy and our society. Today, on 10-10 2020, I thought it would be appropriate to publish my top ten lessons learned from 2020.

  1. “Trust the science but not the scientists.” We quickly learned that medical experts are subject to biases and weaknesses just like the rest of us. As Steve Forbes says, “You can’t always trust the experts.” In early 2020, prominent epidemiologists in the UK and the US published convincing articles predicting that the new virus would kill “millions.” Indeed, people began dying at alarming rates. Other medical experts dissented from the alarmists, saying that the coronavirus was far less lethal than previous influenzas such as the Hong Kong flu of 1969. As doctors have learned more about the virus, treatments have improved and death rates have dropped. But the panic continues.
  1. “The cure turned out far worse than the disease.” Sir Harry Schultz has said, “Never underestimate the size of a panic or the power of a politician.” Government leaders overreacted to the virus scare by shutting down schools, sports, theaters, tourism, travel, churches, and business.   To use a metaphor from John Maynard Keynes, “We used a sledge hammer to crack a nut.” Only now are we finding out the devastating unintended consequences –bankruptcies and job losses, depression and suicides, domestic abuse and alcoholism, and permanent changes in our lifestyle and culture. Some studies suggest that more people are dying from the shutdown than from the disease itself. As I’ve traveled across the country over the past several weeks I’ve seen business after business closed down— whole areas of towns shuttered— no public bathrooms or places to eat— and I am appalled by what has happened to our country. What a tragedy! Sadly, none of the governors or mayors who imposed these draconian restrictions have apologized or taken responsibility for their blunders. Meanwhile, Sweden was one of the few countries that did not succumb to the scaremongering, and the virus is virtually finished there. It is becoming more and more apparent that locking down was the worst choice.
  1. “Technology made the lockdown easier to impose.” How it was possible for the government to shut down the economy and society so quickly? Why were Americans so compliant? Fear about the unknown properties of the virus were the initial reason, of course. But the months long shutdown was made more palatable because e-commerce and online technology made it easier for many to transition to working from home. College and university officials could shut down schools because it’s now possible to teach online and for students to be educated and entertained at home. White-collar workers could do their jobs online. Most products, even food and drink, could be delivered to people sequestering at home, largely because blue-collar jobs (manufacturing, retail and delivery) were deemed “essential” and the risk of the disease was deemed warranted.
  1. “How quickly we lost our liberties.” Milton Friedman said, “Freedom is a rare and delicate flower.” Despite the safeguards guaranteed in the Constitution and Bill of Rights, within days of the lockdown, we saw our First Amendment rights abridged, including the freedom of speech, peaceful assembly, worship, travel, and commerce. Education went online and borders were closed. In the past, quarantines were imposed on those who were actually sick and thus posed a threat, but now everyone was restricted by the fear that anyone could be a carrier, even without symptoms. Government officials in other countries imposed even more severe limitations on their citizens’ freedoms of movement and behavior. At the same time, certain groups were allowed to engage in mass protests without any limitation. But those who protested the lockdowns were cited, fined, and surveilled. Most law-abiding citizens were reluctant to defy the State and engage in civil disobedience, even when their new rules defy common sense.
  1. “The Rise of Irrational Behavior.” I am amazed how willingly citizens conform to State mandates and prohibitions, giving up their liberties so quickly in order to be safe. Masks and physical distancing are the most obvious examples. I can understand why many people wish to protect themselves; let them make their own decisions about safety and risk. But the government and the media have been so effective in scaring people that we see people wearing masks inside their cars when they are driving, walking alone on the streets, and exercising in the gym (which is downright unhealthy). Jokes have been made about how intelligent the virus is, avoiding people while they’re sitting in a restaurant but attacking when they’re standing. The governor of California seriously suggested that people put on their face coverings in between bites when eating at a restaurant. The chief medical officer in Canada said with a straight face that partners should wear masks during sex, or try positions where they aren’t facing each other. Meanwhile, most Swedes have adopted sensible distancing protocols, but they don’t wear face coverings everywhere they go, and their businesses have remained open.
  1. “Government at the federal and state level is out of control.” As a result of its own hysteria in shutting down the economy, governments at all levels face the worst financial crisis Americans have experienced in peacetime. States have used up their “rainy day” funds and many face bankruptcy if Washington does not bail them out. Of course, many municipalities were facing insolvency before the pandemic, but the shutdown has sped up and intensified the crisis as tax revenues lessen and demands for welfare and unemployment benefits increase. Major corporations and small businesses face the same dilemma. Lost revenues and increased spending have resulted in alarmingly high deficits. Central banks like the Federal Reserve are engaged in virtually unlimited buying of Treasury securities and other assets, generating fears of higher taxation and inflation in the future. In sum, Washington is like Humpty Dumpty – the egg has cracked, and it can’t be put back together again. As a result, socialism is on the march.
  1. “Government executives have been given way too much emergency power.” George Washington is alleged to have said, “Government is like fire, a dangerous servant and a fearful master.” Over the years, the president, governors and mayors have been granted almost unlimited power to use “executive orders,” powers intended to be used sparingly, only in times of war or natural disasters. In 2020, they began using executive order to impose virtually any prohibition or mandate they wish. As Jorge “Tuto” Quirado, the former president of Bolivia, once said, “Now more and more everything is either prohibited or mandated.” In 2020, we see that representative democracy has been replaced by dictatorship. A few states limit these emergency orders to 30 or 60 days, during which time the governor must consult with the legislature to get their approval before continuing their mandates, but many have simply issued new orders after the expiration date. The courts have started to rule against these overreaching mandates, notably in Michigan and Pennsylvania, but the damage has been done.
  1. “We need to encourage healthy living.” It seems the entire focus by medical and government authorities is to deal with the symptoms of the disease — to develop a vaccine to prevent the virus or medicines and treatments to make you better if you contract it. But the evidence is overwhelming that healthy and young people are not likely to get the virus. The most vulnerable victims are the elderly who suffer from obesity, diabetes, heart disease, or other diseases. Adding insult to injury (or hypocrisy to mandates), much of the rise in these conditions is a result of misguided and misleading federal nutrition guidelines since the 1980s, when fats were demonized and sugars were quietly substituted to create texture and flavor. The increase in sugar and processed carbs has weakened immune systems. It’s time for teachers and other leaders to encourage healthy living at all ages through proper diets, exercise, and a positive mental attitude. During the lockdown people have done more walking and biking, but the stay-at-home orders, coupled with the closing of gyms, parks, beaches and sporting events have led to a more sedentary and less healthy population. If herd immunity is the goal, having a healthy society is the best road to surviving this crisis.
  1. We have begun to live in fear, not faith.” In today’s Brave New World, masks have become a religious talisman, imbued with magical powers to ward off evil viruses even when they are often dirty and ill-fitting. Meanwhile, religious men and women who go to church are required to wear masks and not socialize—just hurry in and hurry out. Their pastors seem to have more faith in science and government leaders than they do in God. It saddens me when I see children recoil in fear as they pass strangers on the streets or in a store. What kind of message are we sending to our future generations when children are told that anyone could be a carrier—anyone could potentially kill them? Moreover, physical distancing requirements are repressing children’s ability to develop social skills and exercise their natural tendency toward play. Oh, ye of little faith!
  1. “Know the signs of the times.” Bertrand de Jouvenel wisely said, “A forecast is never so useful as when it warns of a crisis.” The pandemic scare offers an important lesson in how we conduct our lives, our friendships, our businesses and our investment portfolios. We need to be alert and prepared for the unexpected. The coronavirus not only derailed the bull market, but the entire economy, politics, and our society. However, forecasting is a difficult business. It’s easier to prepare than to predict. I urge all to save regularly, avoid unnecessary expenses, build a strong cash position in their portfolio and retain earnings and reserves in their business.

Admittedly, many people have learned different lessons during this pandemic—they’ve resolved to spend more time with family and less time away from home, even after the pandemic ends. They’ve reconsidered career choices and school options and reevaluated how they spend money. I applaud those who have chosen to use this time productively. But for many hundreds of thousands of people, the loss of freedom and livelihood has been devastating. Both sets of lessons must be learned so that we don’t permanently lose our freedom to choose our paths.

GO-Day Celebration

Dear friends,

Good news!  For the first time, the federal government (BEA) has released the “top line” gross output (GO) at the same time as the “bottom line” GDP.  For years, publicly-traded companies have simultaneously posted the top line (sales/revenues) and the bottom line (earnings/net income) every quarter.  Now finally the government is releasing GO and GDP every quarter in national income accounting.

Economics finally caught up with accounting and finance!

GO_DAY Celebration

I call GO the missing piece in the macroeconomic puzzle.

Several events mark the GO-Day Celebration.

1. The Wall Street Journal published my op on this milestone in national income accounting on Saturday, October 3. The WSJ op ed is published on line and in the print edition. This is the third time they have carried my articles on GO. See the article in full below.

2. Steve Forbes released his 3-minute “What’s Ahead” podcast on “Gross Output vs GDP: Which Measure is Better?” — it’s the best summary of GO I’ve ever watched. Watch it here: https://www.youtube.com/watch?v=WoYF-ous_mU

3. My press release offers more detail and useful charts at www.grossoutput.com.

4. In celebration of this special occasion (the first time the government has released GO and GDP on the same day), I hosted a 1-hour webinar on GO Day with panelists Steve Forbes, Sean Flynn (Scripps College and primary writer of the McConnell Brue Flynn textbook), David Ranson (chief economist, HCWE, Inc.), and Steve Hanke (Johns Hopkins University). The webinar was courtesy of Chapman University.

You can watch it here: https://chapman.zoom.us/rec/share/KJ17YjuR_6zthmgOA5fNprv2e65F-jICOsf430bJvnu8qWzdPYPfTohPC48qRLe9.Q8rmnlXynnTN74Tv?startTime=1601488807000

More economic analysts are now using it the forecast economic growth and the stock market, including David Ranson (HCWE, Inc.) and Jerry Bowyer, CEO of Bowyer Research. To read how they use GO in their forecasting models, go to “What Others Are Saying” at www.grossoutput.com.

New Stat Augurs Well for Covid Recovery

Gross output measures business confidence better than GDP. It’s fallen less than in past recessions.

By Mark Skousen
WALL STREET JOURNAL, Oct. 2, 2020

Wednesday was a big day for anyone with an eye on the economy. For the first time, the Bureau of Economic Analysis (BEA) released the “top line” gross output, or GO, at the same time as it published the “bottom line” gross domestic product. And the GO data brought a welcome surprise: It shows the economy is much more resilient than it looked.

Analyzing GO and GDP simultaneously is an essential way to know what is really going in the economy. The key is that GDP accounts for final output only: the finished goods and services bought by consumers, business and government. In contrast, GO measures total spending at all stages of the supply chain.

Steve Forbes offers a useful metaphor: “GDP is like an X-ray of the economy; GO is like a CAT-scan.” GO reveals a deeper level of economic activity and is therefore helpful in predicting the direction of growth, not only its current state.

GO is especially significant during downturns. In past recessions, GO declined much faster than GDP and gave an earlier view of the depth of the recession. During the financial crisis in the fourth quarter of 2008, GO fell 6.6%, compared with a 2% drop in GDP—more than three times as fast. The GO decline showed that even while consumer sales held up, businesses were slowing investment in future production.

In 2020, that trend is clearly reversed. In both the first and second quarters, GO fell slightly less than GDP. In the second quarter, real GO declined by 8.4% while real GDP decreased by 9% (in quarterly, nonannualized terms). GO didn’t collapse by multiples of GDP as it has in past recessions. The decline was close to 1-to-1, rather than 3-to-1.

What does this tell us? It’s clear that consumer spending dropped sharply in 2020 as a result of the lockdown, but businesses looked toward the long term, expected a recovery, and adjusted accordingly.

Jerry Bowyer, CEO of Bowyer Research, described the trend to me: “The lockdown was focused on sectors which were skewed towards final stage consumption, such as retail, entertainment and travel. Seeing that the shutdown was disproportionately skewed towards GDP world as opposed to the phases before that phase (GO), showed how the economy would be able to be more resilient in bouncing back than many anticipated.”

That’s good news, suggesting the recovery from this recession will be faster than most analysts thought. The sooner states open up their economies, the faster we will see a return to a dynamic American economy.

I do have one suggestion for the BEA: They need to report GO even more quickly each quarter. Have it come out the day the first estimate of GDP is released, not the third. Information is power.

Mr. Skousen is a presidential fellow at Chapman University, editor of Forecasts & Strategies, and author of “The Structure of Production.”

Online: https://www.wsj.com/articles/new-stat-augurs-well-for-covid-recovery-11601678216?mod=opinion_lead_pos7″>https://www.wsj.com/articles/new-stat-augurs-well-for-covid-recovery-11601678216?mod=opinion_lead_pos7

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved.
Appeared in the October 3, 2020, print edition.

Macroeconomics on the GO: How Wall Street Economic Analysts Use Gross Output (GO)

Here are two examples of how private economic research firms are using gross output (GO) to analyze and predict the future of the economy, growth and the markets.

  1. David Ranson, chief economist, HCWE, Inc. (formerly H. C. Wainwright Economics). www.hcwe.com

Gross output (GO) is a potent but widely-neglected source of information about the national economy whose potential value has been championed and pioneered over many years by economist Mark Skousen in many professional contributions, including his book, The Structure of Production. Thanks to his efforts to bring it to the attention of the economics profession, GO is finally beginning to receive the attention it deserves. GO is a much more comprehensive measure of the size of the economy than GDP. Since GDP includes only ‘final’ goods and services, it leaves out a huge segment of the economy that consists of transactions among businesses that buy and sell intermediate goods to one another in the course of the supply chain of which GDP is the ultimate outcome.

This left-out segment, which might be called the ‘intermediate economy,’ is larger than GDP itself, and dwarfs personal consumption. Its most important feature is that it reflects economic vitality at an earlier stage in the supply chain. As a result it leads GDP by at least three months. It has more credibility than the many leading indicators of GDP for several reasons. Its quarterly growth is very highly correlated with GDP growth, and it’s a direct measure of economic activity rather than a mere indicator that tends to rise and fall in advance of GDP. Historically, GO is better correlated than GDP with financial prices in the capital markets, such as stocks.

GO portrays an economy that is substantially more cyclical than GDP portrays it. According to GO data, the recession of 2008-09 was much deeper than generally thought, and the recovery was slower.

The chief obstacle to using GO as a forecasting tool remains the delay in publishing it. Although the Bureau of Economic Analysis now gives GO more priority than it had in the past, the earliest estimate for any particular quarter is published three months after the quarter has ended – at the time that the third monthly estimate of GDP is released.

I was an early adopter of the idea of Gross Output after interviewing Mark Skousen over past two decades about economic theory. I’ve had a chance to watch and see how the idea developed and eventually became an official government aggregate.

I believe economists who use GO can enjoy a competitive edge over those who rely solely on GDP, which is only a slice of aggregate spending. My friend, Steve Forbes likes to call GDP the X-ray of the economy and GO as the CAT Scan. I would use a different analogy. GDP is like

Flatland in the eponymous Victorian novel, a place with only two dimensions. The Flatlanders only see a circle, not a sphere.  They see a square, not a cube.  GDP is of Flatland whereas GO is of Sphereland.  It shows an extra dimension ignored by virtually the entire economic commentariat.

I found GO particularly helpful in seeing how the pandemic and subsequent lockdown would affect the economy, by looking at various industries in terms of order of magnitude of their respective slice of GO as opposed to GDP.

The lockdown was focused on sectors which were skewed towards final stage consumption, such as retail, entertainment and travel.  Large swaths of consumption were temporarily suppressed, which cause GDP to collapse.

What is surprising is what happened to GO. In past recessions, GO and the supply chain fell far more than GDP, but in the latest GO/GDP data, we discovered that GO fell slightly less that GDP.  Thus, the supply chain was more resilient than the demand step.

In sum, GO showed how the economy is more resilient in bouncing back then many anticipated.

The supply chain in GO is a high volatility, high signal metric which tells us much more than the flatline of consumer spending.

As a citizen, I hope GO is widely adopted. But as an entrepreneur, I hope my competitors never hear of it.

For more information on GO, go to www.grossoutput.com.

Despite First Decline in More Than a Decade for Q1, Gross Output (GO) Might Still Offer Hope for a Robust Recovery in Late 2020

Washington, DC (Tuesday, July 7, 2020):  On July 6, 2020, the federal Bureau of Economic Analysis (BEA) announced that gross output (GO) – the most comprehensive measure of total spending in the economy, including the supply chain – slowed dramatically in the 1st quarter 2020.

Gross Output declined in the aftermath of current political unrests, as well as negative effects of the COVID-19 pandemic and government shutdown of the economy in response to the pandemic. However, GO might offer still some promise for a strong recovery, even over the short term. Business spending, which is a better indicator of economic recovery, declined significantly less than consumer spending. This might be an indication that the economy is more fundamentally sound than currently anticipated.

While some of the business spending was to fight the current epidemic, businesses also used a significant portion of that spending to transform and set up their operations for opening after government closing mandates are lifted. If that is correct, the economy might recover quicker than expected. The most recent jobs report also offered an indication that a relatively fast recovery is certainly a strong possibility.

After delivering steady increases over the past 42 consecutive quarters, first quarter 2020 Gross Output declined 4% in real-terms. Last time real GO declined — in the second quarter 2009 — was in the aftermath of the 2008 economic pullback. While still growing, GO had already slowed its growth rate to 1.1% in the fourth quarter 2019 from nearly 2.5% in the previous period.

This growth slowdown in the last period last year, and a decline in the first period 2020 offered a leading indication that the overall economy was already cooling. GO appears to have anticipated the pullback already in the first quarter even before the economy experienced the full effects of the COVID-19 pandemic and government-mandated shutdowns.

However, while gross output generally declines more than GDP during economic pullbacks, this period’s data presents an anomaly. Despite declining 4% on annualized basis, GO fell less than real GDP, which pulled back 5.1% in the same period.

One reason for this anomaly – and potential s positive sign pointing to a faster-than-expected recovery – is that business spending decreased at a slower rate than consumer spending. Businesses generally anticipate economic contractions and begin spending cuts earlier than consumers. Therefore, Gross Output, which includes business-to business transactions, generally offers earlier signs of pending economic contractions than GDP, which measures only final output.

While consumer spending fell 5.9% in the first quarter 2020, business spending contracted only 5.4%. Despite a relatively small magnitude, this is a significant margin as back-tested date indicates that business spending tends to decline at significantly higher rates than consumer spending during periods of “normal” economic contractions. The margin is even more significant in nominal terms where business spending fell just 4% compared to the 5.7% consumer spending decline. It appears that businesses anticipated the full impact of the COVID-19 epidemic based on just one month of information and adjusted their economic activity by reducing buying activities.

The disruptions in the domestic and global supply chain caused by the COVID-19 pandemic, as well as civic unrest in the U.S., have been in the news lately.  GO is the only macro statistic that includes the value of B2B spending and supply chain. “It deserves to be watched closely and updated frequently,” said Dr. Mark Skousen, presidential fellow at Chapman University and a leading advocate of GO as a better, more comprehensive indicator of economic performance.

 

Business — Not Consumers — Drives the Economy

Note:  Contrary to what the media says, consumer spending does not drive the economy, and does not represent two-thirds of the economy. Using GO as a better, more accurate measure of total spending in the economy, the business sector (B2B spending) is almost twice the size as consumer spending. Consumer spending is the effect, not the cause, of prosperity (Say’s law).

The continued business spending decline suggests that the economy began slowing down as a response to early signs that the COVID-19 epidemic’s impact could be significantly more serious than initially anticipated in December 2019. The U.S.–China Phase One trade agreement — signed on January 15, 2020, in Washington D.C. by China’s Vice Premier Liu He and U.S. President Donald Trump – went into effect on July 1, 2002.  However, there are accusations from both sides regarding the origin of the COVID-19 virus and new information that suggests Chinese government officials might have been aware that the epidemic began in China much earlier than they disclosed it in December 2019. Therefore this agreement might not have the intended economic impact as originally anticipated. Furthermore, protests and civil unrests in the U.S. create additional headwinds that the economy will have to overcome even after the COVID-19 pandemic is under control.

GO is a leading indicator of what GDP will do in the next quarter and beyond. As David Ranson, chief economist for the private forecasting firm HCWE & Co., states, “Movements in gross output serve as a leading indicator of movements in GDP.”

Whenever GO is growing faster than GDP, as it did in most of 2018, it’s a positive sign that the economy is still robust and growing.  However, GO has grown at a slower pace than the GDP in the last three quarters, a sign that the economy was slowing down as it entered 2020.

The federal government will release the advance estimate for second-quarter GDP on July 30, 2020 and a full release of second-quarter GO on September 30, 2020.

 

Report on Various Sectors of the Economy

In the first quarter 2020, 17 of 22 industry sectors groups contracted to drive the overall GO contraction. The second largest sector – Manufacturing – contracted 7.1% on an annualized basis. This pullback marked a third consecutive contraction after the sector declined 1.2% and 1.5% in the previous two periods of 2019. However, a bigger concern is that manufacturing of Durable goods declined nearly 10%. Durable goods, which include capital expense items by businesses and have bigger impact on long-term economic activity, declined considerably more than Nondurable goods, which contracted just 4.5%, less than half the rate for Durable goods.

Finance, insurance, real estate, rental, and leasing – the largest segment that accounts for nearly one-fifth of total Gross Output – was one of just few bright spots in the first quarter. After expanding 1.3% in Q4 2019, this sector more than doubled its growth to 3.2% in the first quarter 2020. The Finance and insurance sub-segment advanced 3.5% and Real estate rental and leasing still grew at a respectable 3.0%.

After briefly breaking a streak of declining for three consecutive periods in Q4 2019, the Mining sector posted a 42% drop in the first quarter 2020. While an important sector among the leading indicators in the early stages of production, the Mining sector only accounts for approximately 1.3% of the overall GO, which minimizes the impact of the decline on the economy overall.

Similarly to the Mining sector, the Utilities sector delivered a single-period increase in Q4 after two negative periods. However, in Q1 2020, the Utilities sector pulled back more than 21%. The Transportation and warehousing sector also suffered a large decline of nearly 16% after expanding 4.7% in the previous period.

Another positive contributor was the Construction sector. After increasing its expansion rate from 2.5% in Q3 to 4.4% Q4 2020, this sector expanded nearly 14% in the first period 2020.

Several other sectors, such as professional, business, educational, health care and social assistance, contracted between 1% and 5%. Under the lockdown directives, the    Arts, entertainment, recreation, accommodation, and food services sector declined more than 40%.

Another sector that continued its steady expansion was Government spending, albeit at a slightly slower pace. After expanding more than 4% in the last period of 2019, overall government spending rose 1.8% in the first quarter 2020. The main driver was a 3.7% growth of Federal government spending. State and local government spending increased at relatively small 1%.

 

Gross Output

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. Until mid-2018, GO outpaced GDP, suggesting a growing economy.  However, since then GO has slowed dramatically, threatening the economic boom.

Consumer Spending Declined Significantly More Than Business Spending in Q1 2020, Which Could Indicate That the Economy Has Solid Fundamentals and is Ready to Bounce Back as Soon as the COVID-19 Pandemic is Under Control and Government Restrictions Mandates Are Lifted

Our business-to-business (B2B) index is also useful. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity contracted 4% in the fourth quarter to $26.3 trillion. Meanwhile, consumer spending contracted 5.7% on an annualized basis to $14.6 trillion. In real terms, B2B activity decreased at an annualized rate of 5.4% and consumer spending declined 5.9%.

 

Gross Output

“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. “After slowing its growth in the fourth quarter at the end of 2019, business activity declined 5.4% in real terms during the first-quarter 2020.

After the initial decline in early-2020, the stock market continues to experience volatility. However, since the mid-March lows, the markets have rebounded strongly and recovered most of those losses. The S&P 500 has risen 40% and has already recovered nearly 90% of its losses between the beginning of 2020 and its year-to-date low on March 23.

While lower than in the previous period, total business spending indicates that the overall economy might surge back in the second half of the year. One stumbling block for the economic recovery might be renewed and continued interference by government officials, such as Governor Sisolak’s (D-NV) decision to extend the current shutdown phase through the end of July in Las Vegas, which forced a cancellation of our FreedomFest conference for the first time since it began in 2007. Similar decisions might put additional pressure on businesses across the country and suppress economic recovery deeper into the year.”

 

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: BEA – Gross Output by Industry

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:

 

To interview Dr. Mark Skousen on this press release, contact him at [email protected], or Ned Piplovic, Media Relations at [email protected]

# # #

________________________________________
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 2020 1st quarter is $37.8 trillion. By including gross sales at the wholesale and retail level, the adjusted GO increases to nearly $46.1 trillion in Q1 2020. Thus, the BEA omits more than $8.2 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.

My Schedule at FreedomFest 2020

by Mark Skousen
Editor, Forecasts & Strategies

FreedomFest

 

Dear FreedomFest friends,

Welcome to the most HISTORIC FreedomFest ever.  The challenges have never been greater, even to put on “the world’s largest gathering of free minds.” 

Those of you who choose to attend are in for a never-to-forget experience. 

This year we have moved over to Caesars Palace. 

Every FreedomFest, the first thing I do is get the printed program and circle all the breakout sessions I want to attend.  You should do the same.  You can get started now by going online to https://event.crowdcompass.com/ff20, and see the entire up-to-date program.  There are over 200 sessions to choose from, including my wife’s Anthem film festival.

Order the thumb drive recordings!  Since I can only attend about 10% of all the sessions, the first thing I do is buy the recordings of the entire conference — contact Harold at 1-866-254-2057. 

Here are the sessions I have chosen to attend this year: 

 

MONDAY, JULY 13 — PRE-CONFERENCE EVENTS

12:30 – 1:20 pm. Milano.  “Who Has 20-20 Vision?  History, Science & Art of Forecasting, From Oracle of Delphi to Modern Times.”   This is a wide-ranging discussion of the science and art of forecasting over time, from the Greeks, the Biblical prophets, Nostradamus, to modern times.  I’ve had a life-long interest in predicting the future since starting my newsletter, Forecasts & Strategies, now in its 40th year.  My talk will include lots of stories about predictions that have come true, and others gone astray. 

1:30 – 2:25 pm.  Milano.  “Murray Rothbard as Historian:  Should ‘Conceived in Liberty’ be Aborted?”  Murray Rothbard wrote a controversial history of the United States, especially his volume 4 on the American Revolution and his just published volume 5 on the Constitution.  Panels include Patrick Newman, and legal expert Randy Barnett (I’ll be moderating). 

2:40 – 3:30 pm.  Milano.  “100 Years of the Socialist Calculation Debate:  Was Mises Right?” with George Gilder, Barbara Kolm, and Steve Forbes (with me as moderator). 

 

MONDAY — OPENING CEREMONIES AND COCKTAIL RECEPTION

5 – 7 pm.  Opening Ceremonies in Main Stage #1 (Julius 25)Dave Smith, libertarian comedian extraordinaire and our emcee, will kick out our “emergency meeting” followed by Steve Forbes speaking on “The Two Biggest Threats to Our Prosperity Today.”  Steve will then moderate a panel on “The New Normal: How the World Has Permanently Changed” with George Gilder, Dr. Drew (Pinsky), Elan Journo (Ayn Rand Institute), and Kerry McDonald (FEE).  We will then have a second panel on “The Pandemic Election” led by Grover Norquist, with David McIntosh (Club for Growth), Rob Arnott (Research Affiliates), John Fund (National Review), and Tim Phillips (Americans for Prosperity).  Lastly, Wayne Root will introduce our final speaker, Donald J. Trump Jr. on “Rage Against the Swamp: A Pro-Freedom Agenda to Defeat Washington’s Est abolishment.” A tall order! 

7-8 pm.  Gala Opening Cocktail Party in the Exhibit Hall. I look forward to greeting each other and the exhibitors, what John Mackey calls “The Trade Show for Liberty,” and join in the autograph sessions at the FreedomFest bookstore.  Here’s a chance to buy one or more American eagle silver dollars from our coin dealers…and see if you can solve my daily “white mates in two” chess problem and win a silver dollar!  Hopefully you will encounter our libertarian card magician, Peter Studebaker.  What fun!

I’m always amazed at the buzz you feel entering the opening cocktail party as friends see old friends and make new ones.  There’s nothing like it.

As the late Nathaniel Brandon said at his first FreedomFest, “I feel an electricity here I haven’t felt in years.”

 

TUESDAY, JULY 14

After breakfast, we’ll start the day’s session at 9 am with three main sessions (due to social distancing requirements).  The MC in main stage #1 is Dave Smith; in main stage #2 Monica Perez; and in main stage #3, Angela McArdle

9:10 – 10:10 am. Main stage #1 (Julius 25).  Dr. Drew will speak on “What’s in a Virus:  Understanding the History and Future of Pandemic Responses.”  I’ll be asking questions after his address, and taking questions from the audience. 

11:10 – 12 noon.  Verona.  “Bob Dylan, the Voice of a Generation.”  Jo Ann Skousen brings to live the lyrics and music of Bob Dylan, winner of the Nobel prize in literature.  This is what I love about FreedomFest.  It’s more than politics and money. 

12:10 – 1:10 pm. Florentine Ballroom.  Luncheon.  “Ask Dr. Drew!  America’s Doctor Answers Your Questions.”  Moderated by Michael Shermer, publisher, Skeptic magazine.  Ticket required.

1:20 – 2:10 pm. Verona. “The Golden Age of Jazz:  Celebrating 100 Years of a Unique American Artform,” with jazz drummer Luke Durham, and music aficionados Alex Green and Sean Malone.  This room is dedicated to Elis Marsalis Sr. and Jr.

2:30 – 3:30 pm.  Main stage #2 (Palace 1/2).  “Who Will Win in November? My Surprise Prediction,” by Allan Lichtman, professor at American University and author of “Keys to the White House” (via satellite).  Interviewed by Grover Norquist.  Prof. Lichtman has accurately predicted every presidential election from Reagan to Trump.

4:20 – 5:10 pm. Main stage #3 (Julius 24).  Tal Tsfany on “Ayn Rand and the Key to Happiness.”  The new president of the Ayn Rand Institute is an entertainment and spell-binding speaker. 

5:30 – 6:00 pm. Main stage #2 (Palace 1/2).  Jo Jorgensen, “With Liberty and Justice for All.”  Jorgensen is the Libertarian candidate for President.   

6:30 – 7:00 pm.  Main stage #3 (Julius 24) “The Five Arguments That Won’t Go Away,” with Tom Woods. 

7:00 – 8:30 pm.  Florentine Ballroom.  “Anthem VIP Masterclass and Reception.”  Ticket required. 

 

WEDNESDAY, JULY 15.

9 – 9:30 am.  Milano.  “The Great Inflation vs Deflation Debate” between Louis Navellier, Rob Arnott, and Steve Moore, moderated by Alex Green.  Will super easy money policies reignite inflation and higher interest rates? 

9:45 – 10:30 am. Main stage #1 (Julius 25).  “Pitch Tank Finale:  Your First Hand Experience to be a Shark!” with Jeff Barnes, Steve Forbes, and other judges.  Always a popular session.

11:10 – 12:00 pm. Augustus I/II.  “God Must be a Mathematician: The Beauty and Mystery of Math Revealed.” Daniele Struppa, president of Chapman University and a professor of mathematics, reveals the universal beauty of numbers.  Daniele is a practicing Catholic. 

Lunch

1:20 – 2:10 pm. Georgetown law professor Randy Barnett on “100 Supreme Court Cases Everyone Should Know.”  100 seems a stretch, how about a dozen? 

2:30 – 3:00 pm.  Milano.  Professor Harry Veryser talks about his book, “It’s Didn’t Have to be This Way: Why Boom & Bust in Unnecessary & How the Austrians Break the Cycle.”

3:00-3:30 pm.  Milano.  I update my book, “A Viennese Waltz Down Wall Street” with a Eureka moment in Austrian Economics in my financial economics class at Chapman. 

4:20 – 5:10 pm. Roman 1/3.  Professor Mark J. Perry (AEI and U of Michigan) defends his passion, “Civil Rights for All – A Look at How Title IX is Being Abused Across College Campuses.”     Perry is one of the most brilliant economists I know. 

Or

4:20 – 5:10 pm.  Hawaii Pacific Prof. Ken Schoolland on “How to Make US Shipping Great Again: The Case Against the 100-Year Jones Act.”  Ken is the author of the great book, “The Adventures of Jonathan Gullible.”  Pick up a copy at the FreedomFest bookstore. 

6 – 7:15 pm. Main stage #1 (Julius 25)  “The Response to the Pandemic on Trial.”  The mock trial is our most popular event each year.  This year we are putting the pandemic/lockdown on trial, with Tom Woods as judge, Catherine Bernard as prosecuting attorney, Michael Shermer as defending attorney, and star witnesses Joel Hay, Steve Moore, and Clark County Commissioner Lawrence Weekly.  The sparks will fly!  Both entertaining and educational.

8 – 9:30 pm. Florentine Ballroom.  40th Anniversary Celebration of Forecasts & Strategies.  A roast and toast with Louis Navellier, Alex Green, Steve Forbes, Adrian Day, Roger Michalski, and Jo Ann Skousen. Response by Mark Skousen.  Limited to 200 subscribers. 

 

THURSDAY, JULY 16

8 – 8:50 am. Florentine Ballroom. A Breakfast with Steve Forbes and Mark Skousen“We Mean Business:  How Adam Smith’s Model of Enlightened Capitalism Can Save Us!” based on Steve Forbes’s book “How Capitalism Can Save Us.” 

9 – 9:45 am. Milano.  “10 Stocks to Buy Now,” with Mark Skousen, Alex Green, Hilary Kramer, and Jim Woods.  Moderated by Roger Michalski. I will have to leave early for the next session. 

9:30 – 10:30 am. Main stage #2 (Palace 1/2).  My wife Jo Ann Skousen and I discuss “What’s Better than Democratic Socialism?  Democratic Capitalism!”  A unique approach that converts many socialists to capitalists! 

11:10 – 12:00 noon. Main stage #1 (Julius 25).  I interview Senator Rand Paul and his wife Kelley on their co-authored book “The Case Against Socialism.”  During this session, I will present them with the annual Leonard E. Read Book Award.  Read this book!

12:10 – 1:10 pm. Florentine Ballroom.  Lunch with Senator Rand Paul and Kelley Paul.  “Behind the Scenes in Washington.”  Time to ask questions. 

1:20 – 2:20 pm.  Main stage #1 (Julius 25).  Closing Panel:  What Have We Learned?  How Do We Go Forward?  With Steve Forbes and others TBD.  Plus announcing next year’s theme and celebrity speaker (you’ll be amazed). 

2:40 – 3:30 pm. Main stage #3 (Julius 24).  “Self-Reliance:  Are You Prepared to Survive the Next Global Crisis?” with Van Simmons, Gary Collins, and Captain Jim Green. 

3:50 – 4:40 pm. Main stage #2 (Palace 1/2).  “Modern Times Turns 200:  The Truth about the Robber Barons and the Industrial Revolution.” Steve Forbes and I take a revisionist approach about the Gilded Age of Rockefeller, Carnegie, Morgan, and Ford. 

6 – 7 pm. Main stage #1.  Reception and gala banquet, “The Roaring 20s: FreedomFest Farewell Banquet.”  MC by Dave Smith.  Anthem film festival hosted by Jo Ann Skousen. Tribute to Ed Crane.  Music and entertainment by The Moonshiners.

 

After a long four-day event, it feels great to get out on the dance floor.  See you there!

This is also my opportunity to thank everyone who has worked so hard and put in countless hours or work and creativity to make this year’s FreedomFest and Anthem Film Festival an incredible success — Valerie Durham, our conference director; Matt Day, Autumn Bennett, Nathan WilliamsHarold Skousen, our registration team, and of course my wife Jo Ann. 

And see you next year!  Dates are July 14-17, 2021, at the Paris Resort, Las Vegas.  Both John Mackey and Steve Forbes will be there.  Details to be announced soon at www.freedomfest.com.

Yours for peace, prosperity and liberty, AEIOU,

Mark Skousen

Producer

 

Gross Output (GO) Anticipated Slowdown in 2020 – Before the Deluge

Washington, DC (Monday, April 6, 2020): On April 6, 2020, the federal Bureau of Economic Analysis (BEA) announced that gross output (GO) – the most comprehensive measure of total spending in the economy, including the supply chain – slowed dramatically in the 4th quarter 2019.

The 1.1% real-term growth in the fourth-quarter 2019 was substantially lower than the 2.5% expansion in the previous period, and much slower than 4th quarter real GDP (2.1%).  This growth slowdown at the end of last year indicated that the overall economy was cooling already coming into 2020.

Furthermore, after surging more than 4% in the second quarter and rising 2% in the third-quarter 2019, business-to-business (B2B) in the supply chain declined 1.7% in the last quarter of the year.

It appears that the businesses anticipated the full impact of the COVID-19 epidemic based on just one month of information and adjusted their economic activity by reducing buying activities.

The disruptions in the global supply chain have been in the news lately.  GO is the only macro statistic that includes the value of B2B spending and supply chain.  “It deserves to be watched closely and updated for frequently,” said Dr. Mark Skousen, presidential fellow at Chapman University and a leading advocate of GO as a better, more comprehensive indicator of economic performance.

After growing faster than the GDP in the first three periods of the year, GO growth of 1.1% in real terms underperformed substantially the 2.1% GDP growth rate for the fourth quarter. Total spending on new goods and services (adjusted GO) [1] increased to above $46.45 trillion. While GO still managed to expand, albeit at a slower pace than in the previous period, B2B spending declined 0.8% (-1.7% in real terms). Additionally, consumer spending growth slowed for the second consecutive period 3.2% (1.9% in real terms) for the current period.

 

Business — Not Consumers — Drives the Economy

Note:  Contrary to what the media says, consumer spending does not drive the economy, and does not represent two-thirds of the economy. Using GO as a better, more accurate measure of total spending in the economy, the business sector (B2B spending) is almost twice the size as consumer spending. Consumer spending is the effect, not the cause, of prosperity (Say’s law).

The business spending decline suggests that the economy began slowing down amid early signs that the COVID-19 epidemic might have a bigger impact than initially anticipated in December 2019. China’s Vice Premier Liu He and U.S. President Donald Trump signed the U.S.–China Phase One trade agreement on January 15, 2020, in Washington D.C. However, this agreement might not have the intended economic  impact in the midst of accusations from both sides regarding the origin of the COVID-19 virus.

GO is a leading indicator of what GDP will do in the next quarter and beyond. As David Ranson, chief economist for the private forecasting firm HCWE & Co., states, “Movements in gross output serve as a leading indicator of movements in GDP.”

Whenever GO is growing faster than GDP, as it did in most of 2018, it’s a positive sign that the economy is still robust and growing.  However, GO has grown at a slower pace than the GDP in the last three quarters, a sign that the economy was slowing down as it entered 2020.

The federal government will release the advance estimate for first-quarter GDP on April 29, 2020 and second-quarter GDP on July 30, 2020.  Both are expected to show a sharp drop in GDP growth and another recession.

 

Report on Various Sectors of the Economy

The second largest sector – Manufacturing – contracted 1.2% on annualized basis. However, this fourth-quarter contraction was actually lower than the 1.5% pullback in the previous period. However, a concern is that manufacturing of Durable goods declined 3%. Durable goods, which include capital expense items by businesses and have bigger impact on long-term economic activity, declined considerably while Nondurable goods still expanded at 0.8%.

Finance, insurance, real estate, rental, and leasing – the largest segment that accounts for nearly one-fifth of the total gross output – expanded at just 1.3%. The tempered growth rate was driven by a 2.2% contraction in the Finance and insurance subsegment.

After declining for three consecutive periods, the Mining sector reversed trend and delivered a 1.4% expansion in the fourth quarter. While an important sector among the leading indicators in the early stages of production, the Mining sector only accounts for approximately 1.5% of the overall GO, which minimizes the impact of the decline on the economy overall.

Reversing direction after two negative periods with a 2.7% expansion in the third quarter, Utilities expanded again 1.4% in the fourth-quarter 2019. Transportation and warehousing expanded 4.7%. Construction improved its growth rate from 2.5% in Q3 to 4.4% for the last period of the year. Alternatively, Professional and business services, which accounts for more than one tenth of GO, grew only 2.9% in the fourth quarter after surging 6.9% in the preceding period.

Another troublesome indicator is that Government spending increased again after declining briefly in the third quarter. Overall government spending increased 4.1%. Federal spending led with a 4.6% growth over the previous period. State and local government spending increased 3.9%

Gross Output

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 attempts 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. Until mid-2018, GO outpaced GDP, suggesting a growing economy.  However, since then GO has slowed dramatically, threatening the economic boom.

 

While Consumer Spending Continued to Advance in Q4, Business Spending (B2B) Began Contracting at The End of 2019 in Anticipation of the Current Economic Downturn.

Our business-to-business (B2B) index is also useful. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity contracted 0.8% in the fourth quarter to $26.6 trillion. Meanwhile, consumer spending rose to $14.8 trillion, equivalent to a 3.2% annualized growth rate. In real terms, B2B activity decreased at an annualized rate of -1.7% and consumer spending rose at 1.9%.

Gross Output

“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. “After slowing considerably in the first-quarter 2019, business activity picked up the pace and expanded 1.1% in real terms during each of the two subsequent periods. However, business spending reversed direction and contracted 1.7% in real terms for the last period of 2019. The stock market continued to advance and the overall economy appeared to maintain its upward trajectory in October and November 2019. However, private businesses gleaned enough information from the early stage of the COVID-19 outbreak in December to reduce their overall buying on concerns that the mild outbreak could turn into a full pandemic. Overall business spending trend continues to be an early indicator that anticipates the direction that the overall economy will take over the subsequent few quarters.”

About GO and B2B Index

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.”

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.”

 

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: BEA – Gross Output by Industry

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:

 

To interview Dr. Mark Skousen on this press release, contact him at [email protected], or Ned Piplovic, Media Relations at [email protected]

# # #

________________________________________
[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 2019 3rd quarter is $38 trillion. By including gross sales at the wholesale and retail level, the adjusted GO increases to more than $46 trillion in Q3 2019. Thus, the BEA omits more than $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.

40 Year of Forecasts & Strategies

Dear friends,

My publisher, Salem Eagle, has just posted my special 40th Anniversary Report, “Seven Golden Lessons:  An Editor’s Perspective After 40 Years.”  It contains all the valuable lessons I’ve learned in 40 years on Wall Street.  Since starting my newsletter, “Forecasts & Strategies,” in 1980, I’ve seen it all — boom and bust, bull and bear markets, the thrill of victory and the agony of defeat, and have survived and prospered through it all.

 

You can read it here:  https://www.markskousen.com/seven-golden-lessons-learned-on-wall-street-an-editors-perspective-after-40-years/

 

There is no charge for this report.  Feel free to circulate among your friends, family and colleagues.

 

Thanks, AEIOU,

Mark Skousen

Presidential Fellow, Chapman University

Newsletter:  www.markskousen.com

Free weekly e-letter:  https://www.markskousen.com/signups/skousen-investor-cafe/

Personal website:  www.mskousen.com

Annual conference:  www.freedomfest.com

U.S. Economy on the GO: Total Spending Accelerates

Washington, DC (Thursday, January 9, 2020):  On January 9, 2020, the Bureau of Economic Analysis (BEA) released the “top line” measure of total spending at all stages of the economy, known as gross output (GO), for the 3rd quarter 2019.

Real GO rose 2.5%, 25% than the 2.0% growth in the previous period, and faster than real GDP (2.1%).

The latest GO data suggests that the overall economy continues its growth at a slightly faster pace than it did in the first half of 2019. However, after surging more than 4% in the previous period, business-to-business (B2B) in the supply chain advanced just 2% in the third quarter.

After trailing GDP growth for two consecutive periods to begin 2019, GO growth has accelerated toward the end of 2019, and implies continued growth into 2020.  Total spending on new goods and services (adjusted GO) [1] increased to above $46 trillion for the first time.  While GO expanded at a faster pace than in the previous period, B2B spending advanced just 2% (1.3% in real terms), which was only half the growth rate from the previous period. Additionally, consumer spending growth slowed as well from 6.9% (4.4% real) in the second quarter to 4.6% (2.8% real) for the current period. (4.4% in real terms).

 

Business — Not Consumers — Drives the Economy

Note:  Contrary to what the media says, consumer spending does not drive the economy, and does not represent two-thirds of the economy. Using GO as a better, more accurate measure of total spending in the economy, the business sector (B2B spending) is almost twice the size as consumer spending. Consumption represents only about one-third of total economic demand.  Consumer spending is the effect, not the cause, of prosperity (Say’s law).

The renewed increase in business spending suggests that the economy is likely to continue expanding at a moderate pace. Strong corporate earnings, prediction that the Federal Reserve is likely to maintain current interest rate levels for 2020 and reliable indications that government representatives of China and the United States will sign phase-one trade deal as early as next week might be drivers of the continued business spending.

In addition to an overall GO growth of 2.5%, most of the individual sectors expanded as well. Just like in the previous period, only two sectors contracted in the third quarter. Furthermore, after a 5.4% expansion in the previous period, government spending growth cooled slightly to “only“ 3.5%.

GO is a leading indicator of what GDP will do in the next quarter and beyond. As David Ranson, chief economist for the private forecasting firm HCWE & Co., states, “Movements in gross output serve as a leading indicator of movements in GDP.”

Whenever GO is growing faster than GDP, as it is now doing, it’s a positive sign that the economy is still robust and growing.

The federal government will release the advance estimate for fourth-quarter GDP on January 30, 2020. If 3rd quarter GO serves as a good forecaster, GDP is likely to grow faster than 2.1%.

 

Report on Various Sectors of the Economy

The mining sector declined now for the third consecutive period. Additionally, the pullback of nearly 26% is significantly higher than the 7% contraction in the previous period. Fortunately, while Mining is a very important sector in the early stages of production, the segment only accounts for approximately 1.5% of the overall GO, which minimizes the impact of the decline on the economy overall.

The second sector that contracted in the third quarter was manufacturing. While manufacturing is the second largest sector with a 16% share, the sector contracted just 1.5%. Despite the segments size, the 1.5% contraction had a smaller effect on the overall economy than the Mining sector’s pullback. Some positive news would be that the 1.9% Non-Durable goods contraction represents nearly 60% of manufacturing’s overall decline. Durable goods, which include capital expense items by businesses and have bigger impact on long-term economic activity, declined just 1.2%, which is lower than the 4.2% decline in the previous period and the 11.7% pullback in the first-quarter 2019.

Similarly, utilities continued to move in the positive direction. After contracting 13.6% in the first quarter and 4.2% in the second quarter of the year, utilities expanded 2.7% in the third-quarter 2019. Transportation remained virtually flat compared to previous period.

After pausing growth and remaining flat in the previous period, construction expanded 2.5%.  Professional and business services, which accounts for more than one tenth of GO, delivered annualized growth of 6.9%, which was the highest growth rate of any sector this period. However, while slightly lower at 6.6%, the growth of the finance, insurance, real estate, rental, and leasing sector was a bigger driver of economic expansion on the account of the largest share of the economy at 16%.

Government spending at all levels increased at an annualized rate of 3.45%. The growth was well balanced between the federal level which expanded at 3.41% and the state and local level growth of 3.49%. However, a positive sign is that government expansion overall and at each individual level was lower than in the previous period. In the second quarter overall government grew 5.4%, 4.6% on the federal level and 6.7% locally.

 GO

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. Lately, GO has outpaced GDP, suggesting a growing economy.

 

Business Spending (B2B) Continues to Advance at a Slower Pace Than Consumer Spending in both Nominal and Real Terms.

Our business-to-business (B2B) index is also useful. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity expanded just 2% in the third second quarter to $26.4 trillion. Meanwhile, consumer spending rose to $14.7 trillion, which is equivalent to a 4.6% annualized growth rate. In real terms, B2B activity rose at an annualized rate of 1.3% and consumer spending rose at 2.8%.

GO“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. “After slowing considerably in the fourth-quarter 2018 and first-quarter 2019, business activity picked up the pace in the second quarter and third quarters. While lower than in the previous period, business spending still expanded 2% in the third-quarter 2019, which indicates that the economy might still have enough momentum to maintain a moderate expansion trend, unless prevented by negative developments in trade or monetary policy.”

 

About GO and B2B Index

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.”

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.”

 

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: BEA – Gross Output by Industry

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:

To interview Dr. Mark Skousen on this press release, contact him at [email protected], or Ned Piplovic, Media Relations at [email protected]

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[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 2019 3rd quarter is $38 trillion. By including gross sales at the wholesale and retail level, the adjusted GO increases to more than $46 trillion in Q3 2019. Thus, the BEA omits more than $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.