Gross Output (GO) Growth Outpaces GDP Again to Suggest Robust Recovery

Washington, DC (Thursday, March 25, 2021): On March 25, 2021, the federal Bureau of Economic Analysis (BEA) released data for the fourth quarter 2020 gross output (GO) – the most comprehensive measure of total spending in the economy, including the supply chain. The data revealed that GO advanced significantly faster than GDP in the last period of 2020, a good sign that strong economic growth will continue into 2021.

While fourth-quarter GDP expanded 6.1% in nominal terms, GO surged 10.6% in comparable terms. Similarly, GO growth of 6.6% in real terms exceeded the real-term GDP growth of 4.3%. Furthermore, on an annualized basis, fourth-quarter GO and GDP exceeded their values from before the 2020 pullback and have risen near their respective highest levels ever – lagging slightly only behind Q3 2019 results in nominal terms.

After a minor dip in the first quarter 2020 and the sharp decline in the second quarter, the economy rallied back in the third quarter to recover most of the second-quarter losses. That growth trend continued in the fourth quarter 2020 at growth rates that exceed recent averages by a significant margin.

Many economists feared that the sharp economic decline in the second quarter would have negative effects on long-term economic growth.  To the extent that major sectors of the economy are still struggling (entertainment, sports, cruise ships, etc.), the US economy is still underperforming and is in many ways, a “K”-shaped recovery rather than a “V”-shaped recovery.

The report released today is based on fourth-quarter 2020 data, when we still did not have complete information on the implementation of Operation Warp Speed – whether vaccines will be effective or how soon we would have enough doses to vaccinate the population to the point of herd immunity. However, with more than one-third of the adult population already vaccinated, easing of government business restrictions and more states going back to business as usual will provide further support necessary to maintain the current economic growth trend.

A positive outlook can also be seen in the relationship between the GO and GDP decline during 2020. Earlier stages of production are generally more sensitive and more volatile in their response to economic disruptions. Therefore, during past recessions, GO commonly declined significantly more than GDP, which captures only final outputs in the economy. For instance, GO declined more than 26% during the last quarter 2008. In the same period, GDP pulled back less than 8%.

But the 2020 economic slowdown broke from this pattern and saw GO decline at similar rates as the GDP. This anomaly from the established historical pattern, provides another indication that the underlying business fundamentals are significantly stronger than originally anticipated, that government shutdowns in response to the COVID-19 epidemic might have been unnecessary and that those responses might have even amplified the initial economic contraction in the second-quarter 2020.

More importantly, as it did during the third quarter, business spending continued to outpace consumer spending in the last quarter 2020.

 

Business – Not Consumers – Drives the Economy

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

Therefore, our business-to-business (B2B) index is very useful for gauging the economy’s underlying health and the readiness to rebound after economic downturns. The B2B Index measures all the business spending in the supply chain and new private capital investment. In the fourth quarter, nominal B2B activity expanded more than 14% to $26.6 trillion. At the same time, consumer spending grew less than 4% on an annualized basis to $14.5 trillion. In real terms, B2B activity expanded at an annualized rate of 12% to $23.25 trillion and consumer spending remained flat at the same level as in the previous period of $13 trillion.

 

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 declining 5.4% and 44% in the first and second quarters, respectively, business activity expanded at an annualized rate of 39% and 12% in real terms in last two quarters of last year.”

 

GO Continues to Grow Faster than GDP in Fourth Quarter to Suggest Strong Economic Recovery at least in the First Half of 2021

Despite significant declines in the first two quarters of 2020, Gross Output indicates robust long-term growth. Prior to what appears to be merely a short-term pullback, GO delivered steady quarterly growth over the previous 42 consecutive periods. Gross Output growth slowed in late 2019, which could have been an early sign of economic slowdown even before the pandemic and government shutdowns in early 2020.

However, GO’s renewed growth in the third and fourth quarter 2020 could set the tone for the overall direction of the economy for the entire 2021 and beyond. Gross Output 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.”

The federal government will release the advance estimate for first-quarter 2021 GDP on April 29, 2021 and the full release of Gross Output, as well as the third estimate of GDP on June 24, 2021.

Important Note:  We are hopeful that in the near future, the BEA will release GO at the same time as the first estimate of GDP for the quarter, not the third estimate.

 

Report on Various Sectors of the Economy

After two periods of contraction and a robust rebound in the third quarter, all but a few of the individual economic sectors continue to expand.

After declining in the previous three quarters, the mining sector expanded nearly 10% in real terms during the fourth-quarter 2020. The Oil and gas extraction sub-segment, which accounts for more than 60% of the overall mining sector, expanded 5.3% in the previous quarter. While exhibiting significant growth, the mining sector’s share of only 1.7% of the economy contributes very little to the overall GO. However, since mining represents the earliest stages of production, we watch its expansion and contraction as an early indicator of what other sectors further down the supply chain might do in subsequent periods.

The Agriculture sector expanded slower in the last quarter than in the third quarter 2020, but still grew 3.3% on an annualized basis. Furthermore, Manufacturing grew 5.7% after spiking more than 40% in the previous period. The two manufacturing sub-segments with highest growth in the most recent periods were Computer and electronic products with 18% and the Fabricated metal products sub-segment with a 16.2% expansion.

More importantly Manufacturing of durable goods expanded at 10% versus the growth of only 1% for Nondurable goods. All these results suggest that, while short-term consumer spending is still lagging, businesses and consumers are confident about the long-term outlook for the economy.

The largest segment of the economy, Finance, insurance, real estate, rental, and leasing, which accounts for one-fifth of GO, grew nearly 5%. The finance and insurance sub-segment expanded 7.6% and the Real estate rental and leasing sub-segment contributed to the growth with an annualized expansion of nearly 3% in the fourth quarter.

The Construction sector delivered a strong growth of nearly 12% – its highest expansion rate last year. However, the Transportation and warehousing sector advanced even faster at 17.4% in real terms. Except for the Pipeline transportation sub-segment, which contracted 8.2%, most other transportation sub-sectors expanded at double-digit percentages. The Transit and ground passenger transportation sub-segment nearly doubled compared to the third quarter, Air transportation grew more than 60%, Rail transportation increased 27.4%, Water transportation volume improved 23% and trucking expanded 5.2%.

Government spending was a mixed bag of results. Federal spending fell 1.2%, but government spending at the state and local level rose 0.5%. While the federal government’s decline rate is higher, State and local government spending accounts for two thirds of total government spending. Therefore, State and local government spending increase erased all spending reductions at the federal level. On the upside, the offset was almost exact and total government spending was flat compared to the previous period.

 

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 not quite the same as the “bottom line” (profit, or net income) of an accounting statement, but rather the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP.

About GO and B2B Index

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, bigger than GDP itself. 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.”

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

Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019:  https://www.forbes.com/sites/steveforbes/2019/09/09/were-using-the-wrong-measure-gdp-to-gauge-the-economys-real-health-mark-skousen/#35ff3d9a52fa

GO-Day podcast discussion panel hosted Mark Skousen that included Steve Forbes, Sean Flynn, Steve Hanke, and David Ranson, September 30, 2020: https://chapman.zoom.us/rec/share/KJ17YjuR_6zthmgOA5fNprv2e65F-jICOsf430bJvnu8qWzdPYPfTohPC48qRLe9.Q8rmnlXynnTN74Tv?startTime=1601488807000

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 following:

Mark Skousen, “If GDP Lags, Watch the Economy Grow,” Wall Street Journal, April 24, 2018:  https://www.grossoutput.com/2018/04/26/away-go-economy-growing-faster-expected/

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,” Economy Watch, July 24, 2017. HCWE & Co. 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 [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 3rd quarter is $36.94 trillion. By including gross sales at the wholesale and retail level, the adjusted GO expands to $45.11 trillion in Q3 2020. Thus, the BEA omits nearly $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.

Business-to-Business (B2B) Spending Grows Faster Than GDP!

Washington, DC (Tuesday, December 22, 2020): On December 22, 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 – rose dramatically in the 3rd quarter 2020.

In the aftermath of a sharp economic decline reported in the second quarter 2020, Gross Output reversed its downtrend over the past two periods and soared in the third quarter 2020. While still not recovered fully to its past highs, third-quarter 2020 Gross Output rebounded to within 2.8% of its level one year ago. This rapid rebound offers supporting evidence that we might indeed see a brisk v-shaped recovery of the economy supported by positive news on new vaccines availability as we enter 2021.

During past recessions, GO generally declined significantly more than GDP. In the fourth-quarter 2008 GO dropped more than 26% while GDP declined less than 8%. Alternatively, GO also bounced back at faster rate than the GDP during past recoveries.  However, the 2020 economic slowdown does not follow the same pattern. Rather than dropping significantly more than the GDP, GO has maintained decline rates parallel with the GDP.

This break from historical recession patterns suggests that business and supply chain spending has remained relatively robust during this economic pullback. Therefore, third quarter economic rebound indicates strong economic fundamentals that could support rapid recovery as soon as economic shutdowns are lifted with widespread availability of vaccinations.

More importantly, business spending outpaced consumer spending during the third quarter.

 

Business – Not Consumers – Drives the Economy

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

Therefore, our business-to-business (B2B) index is very useful for gauging the economy’s underlying health and the readiness to rebound after economic downturns. The B2B Index measures all the business spending in the supply chain and new private capital investment. In the third quarter, nominal B2B activity soared nearly 43% to $25.7 trillion. At the same time, consumer spending grew less than 40% on an annualized basis to $14.4 trillion. In real terms, B2B activity expanded at an annualized rate of 39% to $22.6 trillion and consumer spending reached $13 trillion after expanding 34.5%.

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 declining 5.4% and 44% in the first and second quarters, respectively, business activity expanded at an annualized rate of 39% in real terms in the third quarter 2020.

 

GO Increase Outpaces GDP Growth in Third Quarter to Indicate Potentially Accelerated Economic Recovery

Gross Output suffered significant declines in the first two quarters of this year. However, prior to these pullbacks, GO increased steadily for 42 consecutive quarters. Even before the pandemic and government shutdowns in early 2020, GO began to show weaker growth in late 2019 falling from nearly 2.5% in the third-quarter 2019 to just 1.1% in the final period of last year.

However, GO growth in the third quarter could set the tone for the overall direction of the economy going into next year. 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.”

After the first-half 2020 pullback, both GDP and GO roared back in the third quarter. However, with a third-quarter annualized growth rate of nearly 40%, Adjusted Gross Output (GO*)[1] outpaced the 33.8 % GDP growth rate in the same period by more than 6%. In real terms, the variance between the growth rates of 30.6% for GO* and 29.9% for GDP was slightly lower at 2.3%.

The federal government will release the fourth-quarter and full-year 2020 advance estimate for GDP of for on January 28, 2021 and the full release of Gross Output and third estimate of GDP on March 25, 2021.

Important Note:  We are hopeful that in the near future, the BEA will release GO at the same time as the first estimate of GDP for the quarter, not the third estimate.

 

Report on Various Sectors of the Economy

After two periods of contraction, all major sectors of the economy expanded in the third quarter 2020. All but one if the 21 sectors expanded at double-digit percentages.

The mining sector delivered a significant expansion of 56% after contracting 35% in the previous period. However, while important to the economy as an early stage of production, the Mining sector accounts for only 1% of the overall GO and does not contribute to the overall GO as much as some of the larger sectors.

After contracting for four consecutive quarters, the Manufacturing segment expanded 51% in the third quarter. However, since manufacturing is the second largest segment and accounts for 16% of GO, its impact on the overall growth of the overall GO is substantially higher than that of the Mining sector.

Furthermore, another indication of the economy’s strong fundamentals and a positive outlook for continued growth is that the Durable goods sub-segment, which has a larger impact on long-term economic expansion, grew nearly 74%. At the same time, the Nondurable goods sub-segment expanded 27.6%.

The largest segment of the economy, Finance, insurance, real estate, rental, and leasing, which accounts for one-fifth of GO, grew nearly 12%. The finance and insurance sub-segment expanded more than 8% and the Real estate rental and leasing sub-segment performed even better with a 14.8% expansion that follows a 14.7% contraction in the previous period.

The Agriculture, forestry, fishing, and hunting sector expanded 32%. Spending in the Utilities sector advanced 11.4%. The Construction sector was the only sector that did not achieve a double-digit growth rate in the third period. This sector still expanded at 9.6%.

Transportation and warehousing, as well as the Retail trade and the Wholesale trade, grew in excess of 50%. Because of the devastating decline in the second quarter, the Arts, entertainment, recreation, accommodation, and food services rebounded nearly 160% in the third period.

After pulling back slightly in the second quarter, overall government spending increased 5% in the third quarter. State and local government spending expanded nearly 11%, which drove the expansion of the overall government segment.

Federal government spending contracted nearly 7% compared to the previous period. However, that contraction is slightly misleading. The reason for this contraction is that federal government spending spiked 16% in the previous period, which was the first double-digit increase for this segment in more than a decade.
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 not quite the same as the “bottom line” (profit, or net income) of an accounting statement, but rather the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP.

About GO and B2B Index

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, bigger than GDP itself. 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.”

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

Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019:  https://www.forbes.com/sites/steveforbes/2019/09/09/were-using-the-wrong-measure-gdp-to-gauge-the-economys-real-health-mark-skousen/#35ff3d9a52fa

GO-Day podcast discussion panel hosted Mark Skousen that included Steve Forbes, Sean Flynn, Steve Hanke, and David Ranson, September 30, 2020: https://chapman.zoom.us/rec/share/KJ17YjuR_6zthmgOA5fNprv2e65F-jICOsf430bJvnu8qWzdPYPfTohPC48qRLe9.Q8rmnlXynnTN74Tv?startTime=1601488807000

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 following:

Mark Skousen, “If GDP Lags, Watch the Economy Grow,” Wall Street Journal, April 24, 2018:  https://www.grossoutput.com/2018/04/26/away-go-economy-growing-faster-expected/

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,” Economy Watch, July 24, 2017. HCWE & Co. 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 [email protected], or Ned Piplovic, Media Relations at sk[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 3rd quarter is $36.94 trillion. By including gross sales at the wholesale and retail level, the adjusted GO expands to $45.11 trillion in Q3 2020. Thus, the BEA omits nearly $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.

Elder Ezra Taft Benson Speaks in Communist Russia

Elder Ezra Taft Benson

 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

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.

 

2. Jerry Bowyer, (Bowyer Research) publisher of Affluent Investor Daily (www.affluentinvestor.com), columnist at Town Hall Finance and contributor to Forbes.com and Forbes magazine

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.

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]

# # #

________________________________________
[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.

U.S. Enjoys a Modest Recovery – No Recession in Sight!

Washington, DC (Tuesday, October 29, 2019):

On October 29, 2019, the Bureau of Economic Analysis released gross output (GO) data for the 2nd quarter 2019. The 2.0% real-term growth in the second-quarter 2019 was 25% higher than the 1.6% growth in the previous period.  Adj. GO[1] grew even faster, 2.9% in real terms for the 2nd quarter.

After experiencing a lower growth rate in the first-quarter 2019, adj. GO growth resumed its trend from the prior three periods and advanced 4% in nominal terms and 2.9% in real terms in the second quarter. Interestingly, nominal GDP grew 4.6% in nominal terms in the 2nd quarter.

Total spending on new goods and services (adjusted GO) rose to nearly $45.7 trillion. In line with the GO indications, B2B spending advanced 5.9% (3.8% in real terms) and consumer spending expanded 6.9% (4.4% in real terms).  All second quarter growth rates were substantially higher than growth rates from the previous period, which ranged from 0.5% to 1.5%.

Mark Skousen, a presidential fellow at Chapman University and editor of Forecasts & Strategies, states, “This expansion implies that the economy is currently still recovering modestly without any major recession indicators in sight.  After a flat performance in the first quarter, business-to-business (B2B) in the supply chain advanced nearly 6% in the second quarter. That’s good news.”

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, bigger than GDP itself. 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.”

Recently, Steve Forbes compared GDP to an x-ray of the economy, and GO to a CAT-scan.  See his commentary in the October 31, 2019, issue of Forbes magazine:  https://www.forbes.com/sites/steveforbes/2019/10/08/gdp-is-the-wrong-measure-to-truly-gauge-an-economys-health/#4be5ff3c13ce

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

 

Business — Not Consumers — Drives the Economy

According to Skousen, the introduction of GO has important implications for the economy and economic policy.  Contrary to what the media says, consumer spending does not represent two-thirds of the economy. GO is a better, more accurate measure of total spending in the economy.  It turns out that 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 renewed increase in business spending suggests that the economy might be able to avert a major slowdown and continue expanding at a moderate pace. Strong corporate earnings, interest rate cuts by the Fed, and optimism about resolving the trade conflicts with China might be drivers behind renewed business spending.

In addition to an overall GO expansion of 4.9% (2.9% in real terms), most of the individual industrial sectors grew as well. Unlike the first quarter when five sectors contracted, only two sectors (Mining and Utilities) declined in the second quarter.  Interestingly, government spending growth expanded more than two-fold.

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 2019.

The federal government will release the advance estimate for third-quarter GDP on January 9, 2020.  Brian Moyer, the director of the BEA, expects top-line GO and bottom-line GDP to be released simultaneously in September 2020.

 

Report on Various Sectors of the Economy

While the Mining sector declined for the third consecutive period, the 6.8% pullback was significantly lower than the 26% contraction in the previous period. The Utilities sector also delivered a second consecutive pullback. Just like the Mining sector, the 8.9% contraction was lower than the previous period’s pullback of 13.6%. However, these two sectors combine for less than 3% share of total GO. Therefore, while important indicators as early stages of production, the impact on the overall GO is minor.

More importantly, Manufacturing – the second-largest segment with 17% share of Gross Output – remained relatively flat and expanded only 0.5%. While experiencing only minimal growth, the Manufacturing sector still performed significantly better than it did in the previous period when the sector contracted 3.7%.

While lower than the 11.7% pullback in the previous period, Durable goods’ 4.2% decline in the second quarter limited growth of the overall Manufacturing sector despite a 1.5% expansion of non-durable gods. After a 12% growth in the previous period, Construction remined flat in the second quarter.

The Information sector was the fastest growing sector with 8.1%. While growing at a slightly lower rate of 6.8%, the Finance, insurance, real estate, rental, and leasing sector contributed the most to GO growth as it is the largest sector with nearly 20% share to total GO. Driven by a 6% expansion of the health care segment, the Educational services, health care, and social assistance sector, which accounts for 8% share of GO, expanded 5.6%.

Unfortunately, the overall expansion of GO brought along an increase in government spending as well. With an 11% share of Gross Output, total government spending increased 5.4%, which is an order of magnitude higher than the growth rate of only 1.5% in the previous period. Generally, state and local government spending tends to grow faster than federal spending. However, in the second-quarter 2019, State and local government spending grew ”only” 4.8% and the Federal government increased its spending by 6.7%. Since early 2016, this has been the second period in a row where federal government grew faster than state and local government spending.

 

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.

 

Currently Business Spending (B2B) has Advanced 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 5.9% in the second quarter to $26.4 trillion. Meanwhile, consumer spending rose to $14.5 trillion, which is equivalent to a 6.9% annualized growth rate. In real terms, B2B activity rose at an annualized rate of 3.8% and consumer spending rose at 4.4%.

 

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 fourth-quarter 2018 and first-quarter 2019, business activity picked up the pace in the second quarter, 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]

# # #

________________________________________
[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 2nd quarter is $37.7 trillion. By including gross sales at the wholesale and retail level, the adjusted GO increases to $45.6 trillion in Q2 2019. Thus, the BEA omits $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.

MY INTELLECTUAL ANCESTORS

BY MARK SKOUSEN
Presidential Fellow, Chapman University

“If I have seen a little further, it is by standing on the shoulders of giants.”
— Sir Isaac Newton

Dear readers,

I thought you’d get a kick out of this series of photos and quotes — looks like some of the great economic philosophers and writers rubbed off on me!

I’ll try not to get it go to my head…..I still get rejection letters from the American Economic Review!

Henry_Hazlit_tribute_1984

Courtesy:  Mises Institute

My paying tribute to Henry Hazlitt and his classic book, “Economics in One Lesson” in celebration of his 90th birthday (1984)

“Mark Skousen is America’s finest economist.  He has a genius for explaining complex issues in a clear way and connecting ideas.  He is the Henry Hazlitt of our time.”
– Steve Mariotti, President, National Foundation for Teaching Entrepreneurship (NFTE)

MAS_with_Friedrich Hayek_Austria_1985_01

Courtesy:  John Mauldin, 1985

Interviewing Friedrich Hayek in the Austrian alps in 1985

“Mark Skousen is America’s leading economic author because he roots his luminous books in the real world, in the grand tradition of the great Austrian economists.  He is the Hayek of our era.”
– George Gilder

MAS_with_Milton Friedman_San_Francisco_2006_01

Courtesy:  photo by Van Simmons

Meeting with Milton Friedman in his favorite San Francisco restaurant, 2006

“Mark Skousen has emerged as one of the clearest writers on all matters economic today, the next Milton Friedman!” 
– Michael Shermer, Scientific American