“By integrating the vital role of the supply chain into national income accounting, Mark Skousen’s development of gross output (GO) has created a more dynamic and broader view of the economy, and of the central role that business plays in national income, the business cycle and economic growth. I recommend that economists seriously consider his new approach to macroeconomics.”

– Finn Kydland, Professor of Economics, University of California at Santa Barbara, 2004 Nobel prize winner

“It’s at least conceivable that gross output is a leading indicator of the economy.”

– Peter Coy, Economics Editor, New York Times (Aug 7, 2023)

Washington, DC (Thursday, September 25, 2025):

Today the federal government’s Bureau of Economic Analysis (BEA) released 2nd quarter gross output (GO), the top-line that measures spending at all stages of production. Real Gross Output expanded 1.2%, which is generally a positive sign of future economic growth. However, real GO growth lagged significantly behind the real GDP expansion of 3.8%, which is an indicator of an economy struggling to expand at full speed. Economic data seems to be indicating that Trump’s trade war is finally having deliriously negative effects on business.

However, while GO growth lagged behind GDP in Q2, both indicators performed significantly better in Q2 than in the previous period when real GDP contracted and real GO expanded only 0.6% – only half the rate of current growth. The Adjusted real gross output (GO*) is the worst performer with a real-term growth of only 0.3% in the second quarter. However, that is still a positive outcome compared to the 0.6% contraction in the first quarter 2025.

After faltering a bit in the previous period, consumers spending returned to a steady growth trend and expanded in the second quarter 3.8% in real terms. However, the concern is the 5.6% real-term contraction of the business sector – which tends to forecast economic outlook better than the consumer sector. This is the first pullback in business spending after four consecutive periods of steady growth.

One of the reasons for the B2B spending decline could be the effects of retailers and suppliers purchasing of excess inventories during Q1 in anticipation that tariffs imposed by the Trump administration might result in price increases. Therefore, after those purchases in advance, the business sector tapered its spending in Q2, which resulted in a lower GO growth.

Higher import tariffs generally increase consumer prices in the long run. Both headline and core inflation have declined in the first four months after the new administration took office in January 2025. However, since bottoming out at 2.3% in April 2025, monthly All-Items Consumer Price Index (CPI-U) published by the U.S. Bureau of Labor Statistics (BLS) has increased to 2.9%.

President Trump has been lobbying strongly for an immediate interest rate cut potentially to mitigate some of the negative economic impact of the increased tariffs. At its September 17, the Federal Reserve (Fed) cut the its short-term rates because, “uncertainty about the economic outlook remains elevated,” as well as because, “downside risks to employment have risen.” While President Trump seems to have gotten his wish, the Fed cut the rates only a quarter of a point, instead of a half a point that the current administration preferred. However, while still taking a wait-and-see approach, the Fed has signaled that it might cut the rates two more time before 2025 is over.

[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 second quarter of 2025 is nearly $52.6 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to more than $63.3 trillion in Q2 2025. Thus, the BEA omits almost $11 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.

Unlike consumption, which maintains a steady uptrend over the long term, business spending is significantly more volatile and more sensitive to economic fluctuations. Therefore, the sudden contraction of business spending could indicate a higher probability of a recession in the second half of 2025 or early 2026. However, as indicated earlier, the B2B spending decline in Q2 might be just a result of advance spending in Q1.
We will have to wait until the BEA releases Q3 GO data in late December be certain whether the Q2 B2B spending contraction is just a temporary blip or a beginning of a longer trend, as well as to have a better indication of the economy’s potential trajectory over the next few periods.

GO as a Leading Indicator

In our model, GO – which includes the value of the supply chain – is a leading indicator of where the economy is headed in the year. When GO grows faster than GDP, it suggests economic expansion over the next few quarters, and vice versa. Currently, the BEA’s real GO growth rate of 1.2% is significantly lower than the annualized Real GDP growth of 3.8%. The static view might indicate that the economy is facing headwinds in the second half of 2025. However, some irregularities in business spending patterns might have skewed the Q2 data. Hopefully, the third quarter data in December will offer more clarity regarding the economic outlook at the end of 2025 and leading into 2026.

After sending mixed signals regarding the direction of the economy during 2024, the current economic data for the first two quarters of 2025 is equally ambiguous, and does not provide any more certainty regarding the economic growth outlook for the extended future. The third-quarter 2025 GO data, which is scheduled for release in late December, will hopefully give a clearer indication of the economic direction.
Unlike real terms that showed lethargic growth for GO and especially GO*, all three metrics expanded relatively well in nominal rems. GDP expanded at the highest pace of 3.8% to exceed $30 trillion for the first time ever. GO made modest progress and rose 3.2% to $52.6 trillion.

The Adjusted GO – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) – advanced just 2.3% in nominal terms the second-quarter 2025 and currently stands at $62.2 trillion. The difference between net and gross figures amounts to nearly $11 trillion, which is missing from the government’s official GO figure, but we include it in our Adjusted GO measure.

Our GO model has proven reliably more accurate than GDP in projecting the direction of the economy under normal circumstances. Economist and professor of applied economics at the Johns Hopkins University, Steve Hanke, stated that as, “Trump’s trade wars throw another monkey wrench into the GDP metric,” and that, “for a reliable metric to take the economy’s temperature,” we should, “go with gross output.” Hanke also states that right now, “GO is flashing red.”

The Importance of GO

Most economists are still unaware of the value of GO and use only GDP when gauging economic outlook. However, gross output (GO) should be viewed as the top line in national income accounting, and GDP is the bottom line. Both metrics are essential to understanding where the economy is headed.

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.”

As Steve Forbes has suggested, “GDP is the X-ray of the economy; GO is the CAT-scan.” 

Business – Not Consumers – Drives the Economy

Another benefit of GO is that it dispels the myth that consumer spending drives the economy. Contrary to views of many academic economists and wide-spread media reports, consumer spending does not represent two-thirds of total economic activity. 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 assessing the underlying health of the overall economy and its potential to bounce back after economic declines. The B2B Index measures all the business spending in the supply chain and new private capital investment. After expanding at an average rate of approximately 4% in 2024 and surging 6.7% in Q1 2025, nominal B2B spending pulled back 3.6% from $35.5 trillion in Q1 to $35.2 trillion in Q2 2025. In contrast, after being relatively flat in Q1, nominal consumer spending expanded 3.7% to $20.5 trillion. The disparity is similar in real terms, where consumer spending rose 2.6%, but B2B contracted 5.6%.

“B2B spending is in fact a pretty good indicator of where the economy is headed, since it is more responsive to the boom-bust economic cycle than consumer spending,” states Mark Skousen, editor of Forecasts & Strategies and the Doti-Spogli Chair of Free Enterprise at Chapman University.
While GDP includes only a small portion of investment spending, GO accounts for significantly more of the business investment outlays, which tend to indicate economic direction over extended periods. 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 third-quarter 2025 GDP on October 30, 2025. The full release of Q3 Gross Output data, as well as the third estimate of GDP are scheduled for December 19, 2025.

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. We also recommend that GO be elevated in the BEA’s press releases and website as the “top line” in national income accounting, since GO data often tells a very different story than GDP data.

Report on Various Sectors of the Economy

Just like the overall economy continues to deliver mixed signals, the various segments of the economy are equally volatile. After contracting six out of the past seven quarters, the Agriculture sector remained flat in the second-quarter 2025. The Mining segment followed expansions of approximately 1% in the previous two periods with a 0.6% contraction in the current period. After staying relatively flat in the last quarter of 2024 and surging 11.6% in Q1 2025, the Utilities segment declined nearly 7% in the second-quarter 2025.
These three sectors account for less than 4% of the overall economy. However, since they occupy the earliest stages of production, they tend to be the foretellers of how the later stages, as well as the overall economy might fare in the following few periods.

The Construction sector, which accounts for more than 4% of the economy and contracted slightly at 0.6% in the first quarter of 2025, widened the contraction in Q2 2025 and declined 2.4% in real terms. The second largest sector – accounting for 14% of the overall economy – built on a 0.3% contraction from the previous quarter with a 1.9% expansion Q2 2025. While the overall segment expanded only slightly, the structure of the expansion might indicate a potential for a positive near-term outlook.
While the nondurable goods segment contracted expanded 1%, the durable goods sub-segment delivered a 2.7% growth, which is a better positive indicator for long term growth. The Wholesale trade followed two growth periods with a 10.7% decline in the second-quarter 2025. While higher growth of the durable goods sub-segment and the wholesale trade generally indicate a positive outlook near-term economic growth, it appears that the high growth in Q1 was at least partially the result of business purchasing inventories and goods in advance to hedge for the anticipation of tariff-driven price increases.

Therefore, the sharp decline in the Wholesale trade in Q2 resulted partially from some of the spending occurring in Q1 After declining 3.5% in Q1 2025, the Retail trade contracted even further and fell 7.1% in the second-quarter 2025. The Transportation and Warehousing reversed a 3.7% contraction from the previous period and expanded 2.1% for the most recent period.

The Information backed an 11.6% surge in Q1 with a nearly equal expansion of 10.1% in Q2 2025. The largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – delivered a 22.8% expansion in real terms, which was in line with the 2.5% growth from the first quarter.

The Professional and business services sector; and the Educational services, health care, and social assistance – which account combined for more than 21% of the overall economy – expanded 4.7% and 4.6%, respectively. After contracting 4.3% in Q1, the Arts, entertainment, recreation, accommodation, and food services sector reversed direction and surged 7.7% in the most recent period.

After three consecutive periods of expansion to end 2024, total government spending followed a 0.6% contraction with another overall decline in the second-quarter 2025. Federal government spending decline of 6% drove the overall reduction in government spending. However, despite the strong spending reduction on the federal level and because State and local spending accounts for two-thirds of total government spending, the state and local spending increase of 1.6% reduced the total government spending contraction to 0.7% in Q2 2025.

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

This just in:  My paper, “GO Beyond GDP,” which explains what GO is all about, has been ranked the #1 most downloaded paper by the Social Science Research Network (SSRN). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5002052

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: https://apps.bea.gov/iTable/?reqid=150&step=2&isuri=1&categories=gdpxind

Mark Skousen, “Slow GO May Mean a Recession Soon” Wall Street Journal, April 4, 2024: https://www.wsj.com/articles/slow-go-may-mean-a-recession-soon-us-economy-real-gross-output-65c4f1fd?mod=commentary_article_pos3

Peter Coy, “What GDP’s Cousin Can Tell Us about the Economy,” August 7, 2023, New York Times:  https://www.nytimes.com/2023/08/07/opinion/gdp-recession-gross-output.html?searchResultPosition=1

Mark Skousen, “Recession Fears May Not Pass GO: GDP is Slumping, but There’s a Better Way to Gauge the Economy.” Wall Street Journal, August 11, 2022: Recession Fears May Not Pass GO – WSJ 

If you are not a WSJ subscriber, you can read a copy of the article on: https://www.grossoutput.com/2022/09/12/recession-fears-may-not-pass-go/

Emma Rothschild, “Where is Capital?” in Capitalism: A Journal of History and Economics 2:2 (Summer 2021), pp. 291-371.  https://muse.jhu.edu/article/798746   “Essentially an attempt to apply ideas about gross output to the economic history of the industrial revolution.”  

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

Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019; he compared GDP to an X-ray of the economy, and GO to a CAT-scan: :  https://www.forbes.com/sites/steveforbes/2019/09/09/were-using-the-wrong-measure-gdp-to-gauge-the-economys-real-health-mark-skousen/#35ff3d9a52fa

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].

# # #

Washington, DC (Thursday, June 26, 2025):

Today the federal government’s Bureau of Economic Analysis (BEA) released 1st quarter gross output (GO), the top-line that measures spending at all stages of production. Real Gross Output expanded 0.6%. GO expansion is generally a positive sign of future economic growth. However, real GDP contracted 0.5%, which indicates that consumers are concerned about the U.S. economy’s ability to expand in the near-term. Furthermore, consumer reluctance drove real consumer spending in Q1 2025 to be lower than the previous period, which resulted in the Adjusted real gross output (GO*) contracting 0.6%. While delivering a positive result in nominal terms, the real-term GDP and GO* decline casts some doubts regarding which direction the economy will take as we head into the second half of the year. Despite these real-term declines of GDP and GO*, GO growth leading GDP growth generally indicates a positive economic outlook. Furthermore, while consumers are concerned, the business sector – which tends to forecast economic outlook better than the consumer sector – sees something positive in the current economy to warrant a significant expansion of Business-to-Business (B2B) spending in the first quarter of the year. However, the B2B spending increase most likely is the result of retailers and suppliers advance purchasing of excess inventories in anticipation of rising prices because of the new tariffs imposed by the Trump administration.
The main business concern coming onto 2025 was the uncertainty about the impact that the new Trump administration’s policies might have on the overall economy. While rising import tariffs generally increase consumer prices in the long run, both headline and core inflation have continued to decline after the new administration took office in January 2025, but exhibited a small increase in May. Since it takes a little time for structural changes to occur in the economy to adjust to the new reality of higher tariffs, we must be on the lookout to see whether this inflation uptick in May was a temporary blip, or a beginning of a reversal that will see prices continue to increase as a consequence of the new import tariff policies.

President Trump has been lobbying for an immediate interest rate cut to mitigate potentially some of the negative economic impact of the increased tariffs. However, the Federal Reserve (Fed) decided to keep the interest rates unchanged at its most recent meeting on June 17 and June 18. Responding to criticism by some Congress Republicans, Fed Chair Jerome Powell indicated that the Fed – as well as most economists and financial experts – still expect that the higher tariffs will push inflation higher in the near term. Therefore, the Fed is taking a wait-and-see approach.

Testifying before the House Financial Services Committee, Powell stated, “For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.” Therefore, the Fed decided to maintain the current interest at the 4.25%-4.50%, but is still open to the possibility of two quarter-percentage-point cuts in 2025, if rising tariffs and prices drive the economy to reverse direction and take a downturn in late 2025.

While we see no near-term resolution to the Ukraine war, the new and potentially bigger concern now is the impact of the Trump Administration’s recent bombing of Iran’s nuclear facilities, as well as any potential retaliation by the Iranian government – as well as independent extremists’ organizations. However, even if there is no direct retaliation, we will not see the effects of these economic concerns in GDP and GO data until the BEA releases that data much later in the year.

Unlike consumption, which maintains a steady uptrend over the long term, business spending is significantly more volatile and more sensitive to economic fluctuations. Therefore, the slowly increasing business spending growth over the past several quarters, could indicate also that we might be safe from a recession, and on the way towards a steady economic expansion.

[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 first quarter of 2025 is slightly more than $52 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $62.8 trillion in Q1 2025. Thus, the BEA omits almost $11 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.

GO as a Leading Indicator

In our model, GO – which includes the value of the supply chain – is a leading indicator of where the economy is headed in the year. When GO grows faster than GDP, it suggests economic expansion over the next few quarters, and vice versa. Currently, the BEA’s real GO* growth rate of 0.6 % is higher than the annualized Real GDP contraction of 0.5%. The static view might indicate that the economy is facing headwinds entering 2025. However, the fourth quarter metrics do not paint a clear picture.

After sending mixed signals regarding the direction of the economy since the beginning of 2024, the current economic data for the Q1 2025 is equally ambiguous, and does not provide any more certainty regarding the economic growth outlook for the extended future. The second-quarter 2025 GO data is scheduled to be released in late September, which will hopefully give a clearer indication of the economic direction for the rest of 2025.
Unlike real terms that showed a decline for two of the three metrics. All three metrics expanded in nominal rems. GDP expanded at the slowest pace of 3.2% to reach $29.96 trillion. GO made the largest progress and rose 4.7% to exceed $52 trillion for the first time ever.

The Adjusted GO – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) – advanced 3.4% in nominal terms at the end of the first-quarter 2025 and currently exceeds $62 trillion. The difference between net and gross figures amounts to nearly $11 trillion, which is missing from the government’s official GO figure, but we include it in our Adjusted GO measure.

Our GO model has proven reliably accurate in projecting the direction of GDP under normal economic circumstances.

The Importance of GO

Most economists are still unaware of the value of GO and use only GDP when gauging economic outlook. However, gross output (GO) should be viewed as the top line in national income accounting, and GDP is the bottom line. Both metrics are essential to understanding where the economy is headed.

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.”

As Steve Forbes has suggested, “GDP is the X-ray of the economy; GO is the CAT-scan.” 

Business – Not Consumers – Drives the Economy

Another benefit of GO is that it dispels the myth that consumer spending drives the economy. Contrary to views of many academic economists and wide-spread media reports, consumer spending does not represent two-thirds of total economic activity. 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 assessing the underlying health of the overall economy and its potential to bounce back after economic declines. The B2B Index measures all the business spending in the supply chain and new private capital investment. After expanding at an average rate of approximately 4% in 2024, nominal B2B spending accelerated growth and expanded 6.7% in Q1 2025, which pushed the annualized B2B spending to more than $35 trillion. In contrast, after expanding in excess of 5.3% for 2024, nominal consumer spending expanded just 1% in the first quarter of 2025. The disparity is even more visible in real terms, where consumer spending experienced no growth whatsoever, but B2B expanded 1.6% – the highest real B2B expansion since Q2 2022.

“B2B spending is in fact a pretty good indicator of where the economy is headed, since it is more responsive to the boom-bust economic cycle than consumer spending,” states Mark Skousen, editor of Forecasts & Strategies and the Doti-Spogli Chair of Free Enterprise at Chapman University.
While GDP includes only a small portion of investment spending, GO accounts for significantly more of the business investment outlays, which tend to indicate economic direction over extended periods. 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 second-quarter 2025 GDP on July 30, 2025. The full release of Q2 Gross Output data, as well as the third estimate of GDP are scheduled for September 25, 2025.

.

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. We also recommend that GO be elevated in the BEA’s press releases and website as the “top line” in national income accounting, since GO data often tells a very different story than GDP data.

Report on Various Sectors of the Economy

Just like the overall economy delivered mixed signals, the various segments of the economy followed suit. After breaking a trend of declining for five consecutive quarters in real terms, the Agriculture sector followed up last period’s marginal expansion of 0.3% with a major reversal and contracted 12.2% in the first quarter of 2025. The Mining segment delivered a second consecutive expansion, and rose 1.1% following a 0.8% growth in the previous quarter. The Utilities segment built on a small 0.6% expansion from Q4 2024, and surged 11.6% in Q1 2025.
These three sectors account for less than 4% of the overall economy. However, since they occupy the earliest stages of production, they tend to be the foretellers of how the later stages, as well as the overall economy might fare in the following few periods.

The Construction sector, which accounts for more than 4% of the economy and expanded 3.7% in the last quarter of 2024, contracted slightly at 0.6% in the first quarter of 2025. The second largest sector – accounting for 14% of the overall economy – reversed its small contraction from the previous quarter and expanded 0.3% in Q1 2025. However, while the overall segment expanded only slightly, the structure of the expansion might indicate a potential for a positive near-term outlook. While the nondurable goods segment contracted 0.7%, the durable goods sub-segment delivered a 1.2% growth. The Wholesale trade followed a 2% growth from the previous period with another, albeit smaller expansion of 0.5%. While higher growth of the durable goods sub-segment and the wholesale trade generally indicates a positive outlook near-term economic growth, we must keep in mind that this might be merely a result of the advance inventory purchases in anticipation of tariff-driven price increases.

Upcoming data releases might shed some light on whether advanced purchasing of excess inventories might have driven the Wholesale trade to expand. However, the Retail trade reversed its expansion of 6.4% from Q4 2024, and declined 3.5% in Q1 2025. The Transportation and Warehousing contracted similarly at 3.7% for the period.

After growing only 1% in Q4 2024 following a 7.9% expansion in Q3, the Information sector surged 11.6% to kick of 2025. The largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – delivered a sizeable expansion of 2.5% in Q1 2025, after growing only 0.3% in the last quarter of 2024.
The Professional and business services sector; and the Educational services, health care, and social assistance – which account combined for more than 21% of the overall economy – expanded 0.2%, 2.8%, respectively. However, after delivering a positive result in the previous period, the Arts, entertainment, recreation, accommodation, and food services sector took a dive and contracted 4.3%.
After expanding for three consecutive periods, total government spending contracted in the first period of 2025. State and local governments, which account for two-thirds of total government spending still expanded 2.3%. However, despite being only one-third of the overall government spending, federal government spending declined significantly enough – 7.2% – to make the total government spending shrink 0.6%

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

This just in:  My paper, “GO Beyond GDP,” which explains what GO is all about, has been ranked the #1 most downloaded paper by the Social Science Research Network (SSRN). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5002052

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: https://apps.bea.gov/iTable/?reqid=150&step=2&isuri=1&categories=gdpxind

Mark Skousen, “Slow GO May Mean a Recession Soon” Wall Street Journal, April 4, 2024: https://www.wsj.com/articles/slow-go-may-mean-a-recession-soon-us-economy-real-gross-output-65c4f1fd?mod=commentary_article_pos3

Peter Coy, “What GDP’s Cousin Can Tell Us about the Economy,” August 7, 2023, New York Times:  https://www.nytimes.com/2023/08/07/opinion/gdp-recession-gross-output.html?searchResultPosition=1

Mark Skousen, “Recession Fears May Not Pass GO: GDP is Slumping, but There’s a Better Way to Gauge the Economy.” Wall Street Journal, August 11, 2022: Recession Fears May Not Pass GO – WSJ 

If you are not a WSJ subscriber, you can read a copy of the article on: https://www.grossoutput.com/2022/09/12/recession-fears-may-not-pass-go/

Emma Rothschild, “Where is Capital?” in Capitalism: A Journal of History and Economics 2:2 (Summer 2021), pp. 291-371.  https://muse.jhu.edu/article/798746   “Essentially an attempt to apply ideas about gross output to the economic history of the industrial revolution.”  

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

Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019; he compared GDP to an X-ray of the economy, and GO to a CAT-scan: :  https://www.forbes.com/sites/steveforbes/2019/09/09/were-using-the-wrong-measure-gdp-to-gauge-the-economys-real-health-mark-skousen/#35ff3d9a52fa

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 first quarter of 2025 is slightly more than $52 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $62.8 trillion in Q1 2025. Thus, the BEA omits almost $11 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.

“By integrating the vital role of the supply chain into national income accounting, Mark Skousen’s development of gross output (GO) has created a more dynamic and broader view of the economy, and of the central role that business plays in national income, the business cycle and economic growth. I recommend that economists seriously consider his new approach to macroeconomics.”

– Finn Kydland, Professor of Economics, University of California at Santa Barbara, 2004 Nobel prize winner

“It’s at least conceivable that gross output is a leading indicator of the economy.”

– Peter Coy, Economics Editor, New York Times (Aug 7, 2023)

Washington, DC (Thursday, December 19, 2024):

Today the federal government (BEA) released 3rd quarter gross output (GO), the top-line that measures spending at all stages of production.  Real GO rose 3.1%, a substantial improvement from previous quarters, and equal to real GDP for the third quarter. This is good news. Assuming the fourth quarter GO is positive, it looks like the US avoided a recession in 2024.  Business (B2B) spending also rose 2.9%.

After increasing an average 1.2% over the preceding three quarters, the Adjusted GO (GO*)[1] – which measures spending at all stages of production – delivered a significant bump and rose 3.0% in real terms for the third quarter of 2024. For the third consecutive period the Adjusted GO growth trailed GO growth rates published by the BEA, but the gap has narrowed significantly. This is indicating that the business spending is increasing comparing to previous few periods, and signals that fears of recession from earlier in the year are dissipating quickly. It is important to keep in mind that these are third-quarter results – before we knew the results of the presidential election. With the new pro-business administration set to take office next month, and already courting heads of mayor domestic and international businesses to set growth strategies, we might see a brisk increase in business investment spending as early as the last quarter of 2024 – for which the data will be released in March 2025.

The continuously increasing growth rate of BEA’s GO numbers indicates that the economy should most likely avoid a recession and that it might be set for a strong positive growth in the next year, barring any unforeseen, black swan-type events. The one piece of the puzzle still needed for absolute confirmation of the strong economic growth to come is that the adjusted real GO (GO*) growth rate rises above the GO growth rate. The Adjusted GO has been increasing steadily over the past few quarters and its growth rate might be back above the GO growth rate as early as the fourth quarter, thus confirming the optimistic outlook for an expanding economy in 2025. 

Businesses were cautious about spending over the past four periods. However, real-term business spending (B2B) has been ramping up lately. This is a continuing indication that the business sector – which is substantially larger than the retail sector and generally has a better view of the direction of the economy than the consumers – is becoming more confident that a faster economic expansion is in the near-term future. The GDP figures – which are dominated by consumer spending – show expansion almost always and overestimate the health of the economy.  However, business spending is more sensitive to the ups and down of the economy, which makes it a better indicator of the direction that the economy might take in the near future.

While business spending is probably the most significant indicator, economic outlook hinges on several additional factors. The uncertainty of the U.S. presidential election is now behind us. Whether you see the results of the U.S. presidential election as good, bad or indifferent, at least the uncertainty is over, which makes other factors easier considerations. Domestically, the Federal Reserve cut interest rates yesterday to a 4.25%-4.50% range, but projects only two more quarter-percentage-point cuts in 2025.

Continued concerns of the war in Ukraine are still high on the international stage. However, hopes are that the new administration in the Executive branch might be able to broker some kind of ceasefire, or permanent solution to the conflict. While permanent solution is preferable, even a minor improvement in this conflict would go a long way into easing further trepidations about economic conditions in Europe and Asia, which are easing already on the prospect of the U.S. economic expansion. One concern that could derail U.S. economic growth are president-elect’s threats to implement wide-ranging tariffs on imports from our economic rivals like China, as well as our economic partners like Canada. Unlike consumption, which maintains a steady uptrend over the long term, business spending is significantly more volatile and more sensitive to economic fluctuations. Therefore, the slowly increasing business spending growth over the past several quarters, could indicate that we might be safe from a recession, and on the way towards a significant economic expansion.

[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 third quarter of 2024 is slightly less than $51 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $61 trillion in Q3 2024. Thus, the BEA omits almost $11 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.

GO as a Leading Indicator

In our model, GO – which includes the value of the supply chain – is a leading indicator of where the economy is headed in the year. When GO grows faster than GDP, it suggests economic expansion over the next few quarters, and vice versa. Currently, the BEA’s real GO’s Q2 real growth rate of 3.2% is slightly higher than the annualized GDP growth rate of 3.1%. The static view of the nearly identical growth rates does not offer any insights about the direction of the economy. However, the dynamic view of the GO growth rate rising faster than GDP growth rate indicates that the recession fears have subsided and that the outlook on economic growth has shifted to positive going into 2025.

After four quarters of mixed signals regarding the direction of the economy in the near term, economic data for the third quarter indicates a positive shift in the economic growth outlook as we head towards 2025. The fourth-quarter and 2024 full-year GO data is scheduled to be released in late March next year, which will hopefully confirm the uptrend and help in signaling the economy’s path for the rest of 2025.

Just as close as in real terms, third-quarter 2024 nominal growth rates were similarly equal, with GDP expanding 5.0% to exceed $29.4 trillion and GO rising 5.2% to $50.3 trillion.

The Adjusted GO – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) – advanced 5.0% in nominal terms at the end of the third quarter 2024 and is now slightly over of $60.7 trillion. The difference between net and gross figures amounts to nearly $11 trillion, which is missing from the government’s official GO figure, but we include it in our Adjusted GO measure.

Our GO model has proven reliably accurate in projecting the direction of GDP under normal economic circumstances.

The Importance of GO

Most economists are still unaware of the value of GO and use only GDP when gauging economic outlook. However, gross output (GO) should be viewed as the top line in national income accounting, and GDP is the bottom line. Both metrics are essential to understanding where the economy is headed.

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.”

As Steve Forbes has suggested, “GDP is the X-ray of the economy; GO is the CAT-scan.” 

Business – Not Consumers – Drives the Economy

Another benefit of GO is that it dispels the myth that consumer spending drives the economy. Contrary to views of many academic economists and wide-spread media reports, consumer spending does not represent two-thirds of total economic activity. 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 assessing the underlying health of the overall economy and its potential to bounce back after economic declines. The B2B Index measures all the business spending in the supply chain and new private capital investment. After expanding 3.0% and 3.6% in the previous two periods, nominal B2B delivered a 4.9% increase in Q3 2024, which pushed the annualized B2B spending to more than $34.8 trillion. At the same time, consumer spending expanded 5.3% – relatively flat to previous period – and currently stands just short of $20 trillion. In real terms, business spending grew 2.9%, and consumer spending expanded 3.3% 

“B2B spending is in fact a pretty good indicator of where the economy is headed, since it is more responsive to the boom-bust economic cycle than consumer spending,” states Mark Skousen, editor of Forecasts & Strategies and the Doti-Spogli Chair of Free Enterprise at Chapman University.

While GDP includes only a small portion of investment spending, GO accounts for significantly more of the business investment outlays, which tend to indicate economic direction over extended periods. 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 fourth-quarter and 2024 full-year GDP on January 30, 2025. The full release of Q4 Gross Output data, as well as the third estimate of GDP are scheduled for March 27, 2025..

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. We also recommend that GO be elevated in the BEA’s press releases and website as the “top line” in national income accounting, since GO data often tells a very different story than GDP data.

Report on Various Sectors of the Economy

Despite the robust expansion of the overall economy, three of the major economic sectors experienced a pullback again in Q3 2024 as they did in the past two periods. Moreover, because these three sectors are in the very early stages of production, they generally are better early indicators of economic direction than later stages of production. However, the contractions were relatively mild compared to past few periods, which is a slightly positive indicator for the rest of the economy going forward.

After declining more than 9% in Q2, the Agriculture sector contracted merely 4.6% in Q3. This marks the fourth consecutive quarter of contraction in real terms for the sector. The Mining sector which posted a small gain in the previous period but contracted more than 6% in Q1, declined just 1.9% in Q3. However, the Utilities segment was the biggest mover, which followed a plummet of more than 25% in Q2 with a contraction of just 2.6% in Q3 2024.

While these three sectors account for less than 4% of the overall economy, they are all early-stage sectors, which can signal how the later stages and the overall economy might shift over the subsequent few periods.

The Construction sector was flat to the previous period. As the second-largest sector with a more than 14% share of the overall economy, the Manufacturing sector reversed a contraction of 2% in the previous period and expanded 1.5% in Q3. Furthermore, this expansion was driven by a 3.5% growth in nondurable goods, which is an even better positive sign for the extended economic outlook.

While the Wholesale trade grew nearly 6% and the Retail expanded 12.3%, the Transportation and Warehousing sector advanced 4.4%, Additionally, the Information sector increased 7.9%.

The largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – expanded 0.4%, which is in line with last period’s performance.

Three late-stage sectors – Professional and business services; Educational services, health care, and social assistance; and Arts, entertainment, recreation, accommodation, and food services, which account combined for more than a fourth of the overall economy – expanded 3.3% and 6.1%, and 0.7% respectively. 

After declining for three consecutive quarters, the government spending growth rate reversed direction last period, and has again done so this period. Overall government spending followed a 2.7% expansion from the last period with a 3.6% increase in Q3 2024. The main driver behind this increase was the 7.1% increase in Federal government spending, which was just 1.3% in the previous quarter. Alternatively, State and local governments grew a slightly little slower rate, and followed a 3.1% expansion from Q2 with a 2.1% increase in Q3 2024.

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

This just in:  My paper, “GO Beyond GDP,” which explains what GO is all about, has been ranked the #1 most downloaded paper by the Social Science Research Network (SSRN). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5002052

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: https://apps.bea.gov/iTable/?reqid=150&step=2&isuri=1&categories=gdpxind

Mark Skousen, “Slow GO May Mean a Recession Soon” Wall Street Journal, April 4, 2024: https://www.wsj.com/articles/slow-go-may-mean-a-recession-soon-us-economy-real-gross-output-65c4f1fd?mod=commentary_article_pos3

Peter Coy, “What GDP’s Cousin Can Tell Us about the Economy,” August 7, 2023, New York Times:  https://www.nytimes.com/2023/08/07/opinion/gdp-recession-gross-output.html?searchResultPosition=1

Mark Skousen, “Recession Fears May Not Pass GO: GDP is Slumping, but There’s a Better Way to Gauge the Economy.” Wall Street Journal, August 11, 2022: Recession Fears May Not Pass GO – WSJ 

If you are not a WSJ subscriber, you can read a copy of the article on: https://www.grossoutput.com/2022/09/12/recession-fears-may-not-pass-go/

Emma Rothschild, “Where is Capital?” in Capitalism: A Journal of History and Economics 2:2 (Summer 2021), pp. 291-371.  https://muse.jhu.edu/article/798746   “Essentially an attempt to apply ideas about gross output to the economic history of the industrial revolution.”  

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

Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019; he compared GDP to an X-ray of the economy, and GO to a CAT-scan: :  https://www.forbes.com/sites/steveforbes/2019/09/09/were-using-the-wrong-measure-gdp-to-gauge-the-economys-real-health-mark-skousen/#35ff3d9a52fa

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 third quarter of 2024 is slightly less than $51 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $61 trillion in Q3 2024. Thus, the BEA omits almost $11 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.

“By integrating the vital role of the supply chain into national income accounting, Mark Skousen’s development of gross output (GO) has created a more dynamic and broader view of the economy, and of the central role that business plays in national income, the business cycle and economic growth. I recommend that economists seriously consider his new approach to macroeconomics.”

– Finn Kydland, Professor of Economics, University of California at Santa Barbara, 2004 Nobel prize winner

“It’s at least conceivable that gross output is a leading indicator of the economy.”

– Peter Coy, Economics Editor, New York Times (Aug 7, 2023)

Washington, DC (Thursday, September 26, 2024): The federal government (BEA) released today the figures for the second-quarter 2024 gross output (GO) – the top line in national income accounting. After increasing 1.4% in Q4 2023 and rising just 1.0% in the first quarter of 2024, the Adjusted GO (GO*)[1] – which measures spending at all stages of production – delivered lethargic growth of just 1.2% in real terms for the second quarter of 2024. Using BEA’s net figure, real GO grew 1.8%, much higher than the Adjusted Gross Output (GO*), indicating that the spending in the supply chain is lagging and which might spell troubles for the economy in the near future. This is the second consecutive period in which the Adjusted GO growth trailed GO growth rates published by the BEA.

While the BEA’s GO numbers indicate a slightly positive outlook about economic growth over the next few quarters, the lethargic growth of the adjusted real GO suggests that the economy is struggling and might turn negative as a result of any disruption. With the Boeing workers already on strike, and two more labor strikes looming – auto workers and east coast port workers – the danger of an economic downturn is substantial. 

Another reason to be cautious about economic growth is that business spending continues to underperform compared to consumer spending, a trend that began in Q4 2023. While business (B2B) spending increased 3.6% in the second quarter – higher than Q1 growth of 2.8% – it still was significantly lower than the 5.6% consumer spending growth in nominal terms. On an annualized basis in real terms, business spending expanded only 1%, but consumer spending grew 2.7%, which is nearly 30% higher than in the previous quarter.

In nominal terms, the BEA’s GO advanced 4.5% to exceed $50 trillion for the first time. This growth rate exceeds historical averages, which generally indicates a healthy economy a hints at a potential growth ahead. However, the GO growth lagging behind the GDP growth of 5.6% in Q2 and the lackluster performance of the adjusted GO, indicate that outlook for near-term economic growth is uncertain as we head towards the end of 2024.

Real-term business spending (B2B) growth was relatively flat for the third consecutive quarter. This is a continuing indication that the business sector – which is substantially larger than the retail sector and generally has a better view of the direction of the economy than the consumers – is still cautious about the near future, and that the economy is far from ready for a brisk expansion. While Q2 GDP paints a rosy picture on the surface, an economic slowdown is not out of the question as we close 2024 and transition into 2025.

In addition to lackluster business spending, economic outlook hinges on several additional factors. Domestically, concerns about the outcome of the 2024 presidential election, expectations of Federal Reserve’s actions regarding interest rates that might exacerbate inflation loom over the economy. Internationally, continued impact of the war in Ukraine, economic conditions in Europe and Asia, as well as continued competition with China for global economic and military supremacy are just some of the issues that will impact economic future in the near term.

The Federal Reserve cut the interest rate 50 basis points at its meeting this month. If we exclude emergency rates cuts during the Covid pandemic in 2020, the last time the Fed cut the federal funds rate 50 basis points or more was during the global financial crisis of 2008. With the economy showing no clear signs of rapid growth, the Fed indicated that it might cut the interest rates another 50 basis points over its two remaining meetings in 2024. The slow growth of the Adjusted GO confirms the Fed’s worries about the US economy and its reasoning to cut the interest rates.

Interest rate cuts demonstrate the Fed’s belief that business borrowing is bellow expected levels and that economic growth needs support from easier access to money. While easy money policies do help economic expansion in the short term, those policies inevitably result in higher inflation over the longer term.   

Unlike consumption, which maintains a steady uptrend over the long term, business spending is significantly more volatile and more sensitive to economic fluctuations. Therefore, the tepid business spending growth over the past several quarters, could indicate a mild recession predicted by Adj. GO trailing GDP growth.

GO as a Leading Indicator

In our model, GO, which includes the value of the supply chain, is a leading indicator of where the economy is headed in the year. When GO grows slower than GDP, it suggests economic decline over the next few quarters, and vice versa. Currently, the BEA’s real GO’s second quarter real growth rate of 1.8% is lower than the annualized GDP growth rate of 3.0%, which is usually a sign of an upcoming economic contraction. This indication is further emphasized by the real Adjusted Gross Output (GO*) growth rate of just 1.2% lagging behind both GDP and GO growth, which can mean a stagnating economy.

After three quarters of mixed signals regarding the direction of the economy in the near term, economic data for the second quarter did not offer any more clarity regarding the likely direction of the economy in late 2024 or early 2025. The third-quarter 2024 GO data is scheduled to be released in late December, which will be too late for forecasting economic direction in 2024, but might help in signaling the economy’s path in early 2025.

In nominal terms, second-quarter 2024 GDP expanded 5.6% to exceed $29 trillion for the first time. The BEA’s GO grew 4.5% to cross above the $50 trillion mark – another first. The Adjusted GO – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) – advanced 3.9% in nominal terms at the end of the second quarter 2024 and is now just shy of $61 trillion. The difference between net and gross figures amounts to nearly $11 trillion, which is missing from the government’s official GO figure, but we include it in our Adjusted GO measure.

Our GO model has proven reliably accurate in projecting the direction of GDP under normal economic circumstances.

The Importance of GO

Most economists are still unaware of the value of GO and use only GDP when gauging economic outlook. However, gross output (GO) should be viewed as the top line in national income accounting, and GDP is the bottom line. Both metrics are essential to understanding where the economy is headed.

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.”

As Steve Forbes has suggested, “GDP is the X-ray of the economy; GO is the CAT-scan.” 

Business – Not Consumers – Drives the Economy

Another benefit of GO is that it dispels the myth that consumer spending drives the economy.  Contrary to views of many academic economists and wide-spread media reports, consumer spending does not represent two-thirds of total economic activity. 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 assessing the underlying health of the overall economy and its potential to bounce back after economic declines. The B2B Index measures all the business spending in the supply chain and new private capital investment. After a 3.0% expansion in the previous quarter, nominal B2B spending grew again in Q2 2024. The 3.6% second-quarter growth pushed business spending to $34.5 trillion. At the same time, consumer spending expanded 5.4% to $19.7 trillion. However, the higher-than-normal inflation reduced consumer spending growth to just 2.7% in real terms. Inflation impact was even more evident in business spending as the 3.6% growth in nominal terms became a growth of just 1.0% in real terms. This low growth in real terms only reversed the contraction form the two previous periods and brought the real B2B spending back to Q3 2023 level. 

“B2B spending is in fact a pretty good indicator of where the economy is headed, since it is more responsive to the boom-bust economic cycle than consumer spending,” states Mark Skousen, editor of Forecasts & Strategies and the Doti-Spogli Chair of Free Enterprise at Chapman University.

While GDP includes only a small portion of investment spending, GO accounts for significantly more of the business investment outlays, which tend to indicate economic direction over extended periods. 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 third-quarter 2024 GDP on October 30, 2024. The full release of Q2 Gross Output data, as well as the third estimate of GDP are scheduled for December 19, 2024.

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. We also recommend that GO be elevated in the BEA’s press releases and website as the “top line” in national income accounting, since GO data often tells a very different story than GDP data.

Report on Various Sectors of the Economy

Three of the major economic sectors experienced a pullback again in Q2 2024 as they did in the previous period. Moreover these three sectors are in the very early stages of production, which generally are better early indicators of economic direction than later stages of production.

After declining 1.2% in Q1, the Agriculture sector contracted an additional 9.1% in the second quarter. This marks the third consecutive quarter of contraction in real terms for the sector. The Mining sector reversed a contraction from Q1 (-6.1%) and expanded slightly at 1.7% in the second quarter. However, the Utilities segment – which experienced a slight growth of 1% in Q1 after a 5.7% decline in the last period of 2023 – delivered a largest decline of any sector this period and shrunk more than 25% in Q2 2024.

While these three sectors account for only 3.9% of the overall economy, they are all early-stage sectors, which can signal how the later stages and the overall economy might shift over the subsequent few periods.

One bright point in the earlier stages of production was the Construction sector (4.4% share of the economy), which followed up a healthy 7.3% real-term growth in the first quarter of 2024 with an even stronger expansion of 15% in the second quarter.

However, the main reason for concerns about economic growth is the Manufacturing sector. After expanding less than 1% in the last quarter of 2023, and then delivering no growth in the first quarter of 2024, the second-largest sector with a 14.5% share of the overall economy, contracted nearly 2% in Q2 2024. The contraction affected both Durable goods (-1.1%) and Nondurable goods (-2.6%). The Wholesale sector expanded 3.6% and the Retail sector grew 2.6%.

The largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – inked only a small expansion of just 0.5% in real terms. While Real estate and rental and leasing subsector expanded 4.4%, the Finance and insurance subsector contracted 5.1%.

Three late-stage sectors – Professional and business services; Educational services, health care, and social assistance; and Arts, entertainment, recreation, accommodation, and food services, which account combined for more than a 23% of the overall economy – expanded 6.0% and 9.8%, and 8.7% respectively. 

Prior to Q2 2024, the government spending growth rate declined for three consecutive quarters. However, the growth rate decline come to an end this period. Total overall government spending in real terms expanded 2.7% in the second quarter. After shrinking for two consecutive periods, Federal government spending expanded 1.3% in Q2 2024. However, the bigger concern is the 3.1% spending expansion of State and local governments, which account for 70% of total government spending.

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

For a complete analysis of GO, go to https://www.grossoutput.com/gross-output/

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: https://apps.bea.gov/iTable/?reqid=150&step=2&isuri=1&categories=gdpxind

Mark Skousen, “Slow GO May Mean a Recession Soon” Wall Street Journal, April 4, 2024: https://www.wsj.com/articles/slow-go-may-mean-a-recession-soon-us-economy-real-gross-output-65c4f1fd?mod=commentary_article_pos3

Peter Coy, “What GDP’s Cousin Can Tell Us about the Economy,” August 7, 2023, New York Times:  https://www.nytimes.com/2023/08/07/opinion/gdp-recession-gross-output.html?searchResultPosition=1

Mark Skousen, “Recession Fears May Not Pass GO: GDP is Slumping, but There’s a Better Way to Gauge the Economy.” Wall Street Journal, August 11, 2022: Recession Fears May Not Pass GO – WSJ 

If you are not a WSJ subscriber, you can read a copy of the article on: https://www.grossoutput.com/2022/09/12/recession-fears-may-not-pass-go/

Emma Rothschild, “Where is Capital?” in Capitalism: A Journal of History and Economics 2:2 (Summer 2021), pp. 291-371.  https://muse.jhu.edu/article/798746   “Essentially an attempt to apply ideas about gross output to the economic history of the industrial revolution.”  

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

Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019; he compared GDP to an X-ray of the economy, and GO to a CAT-scan: :  https://www.forbes.com/sites/steveforbes/2019/09/09/were-using-the-wrong-measure-gdp-to-gauge-the-economys-real-health-mark-skousen/#35ff3d9a52fa

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].

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[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the second quarter of 2024 is slightly over $50 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to more nearly $61 trillion in Q2 2024. Thus, the BEA omits nearly $11 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.