Washington, DC (Thursday, September 29, 2022): Today, the federal government released gross output (GO) – the measure of total spending in the economy – for the second-quarter 2022. Inflation-adjusted real GO increased 1.6% in the second period 2022. While this marks a fifth consecutive period of declining growth rates in the aftermath of sharp rebound following a pandemic-driven 40% drop in Q2 2020, the current growth rate is back to historically average levels.

In addition to returning to its “normal” range, the real Gross Output growth rate was higher once again than the real GDP, which contracted another 0.6% in Q2 2022, after declining 1.6% in the first period of the year. Furthermore, after trailing the GO growth rate over several recent periods, the Adjusted Gross Output (GO*)^[1] expanded 2.0% this quarter.
In nominal terms, second-quarter 2022 GDP expanded 8.2% and GO grew 12.5%. The Adjusted Gross Output (GO*) – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) advanced 12.8% in Q2 2022. The difference between net and gross figures amounts to more than $11 trillion, which is missing from the government’s official GO figure, but we include it in our Adjusted GO measure.

GO Predicts Slow Growth, No Recession

First-quarter 2022 GO expanded at a higher rate than GDP as well, which generally indicate a positive outlook for the next-quarter GDP. With another period of GO advancing ahead of the declining GO in Q2 2022, we should expect positive GDP growth results when the Bureau of Economic Analysis (BEA) releases its third-quarter 2022 advance GDP estimates on October 27.

While our GO model has proven reliably accurate in projecting next quarter’s GDP direction under normal economic circumstances, several extraordinary still lingering from pandemic-related issues, such as continued supply-chain shortages, inflation, or rising interest rates, can cause minor deviation in the model.

Nevertheless, another factor for optimism about GDP growth in the next period is the continued and steady increase in business-to-business (B2B) spending, which continues to outpace consumer spending in real terms. This is an indication of the business sector’s confidence that the economy should sidestep a recession and should be on its way to a satisfactory recovery, as opposed to a severe recession projected just a couple of periods ago.
As indicated by the graph in the “Business – Not Consumers – Drives the Economy”, B2B spending is expanding at a faster rate than consumption, which is positive indicator for the future.

“GDP is the X-ray of the Economy; GO is the CAT-Scan”

Most economists use only GDP and disregard GO when gauging economic outlook. However, Gross Output (GO) is the top line in national income accounting; GDP is the bottom line. Both metrics are essential to understanding where the economy is headed. According to Steve Forbes, GDP is the X-ray of the economy; GO is the CAT-scan.
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.”
Mark Skousen, who holds the new Doti-Spogli Endowed Chair of Free Enterprise at Chapman University, concludes, “GO gives a more complete picture of the economy; it is the missing piece of the macroeconomic puzzle.”
Recession or No Recession?
The sharp economic decline in the second quarter 2020 compelled many economists to predict marginal growth and substantial economic downturn over an extended period following the initial COVID pandemic breakout. However, the steep one-period drop in the second-quarter 2020 appears to have been merely an immediate and short-term reaction to the 2020 economic slowdown – caused primarily by government restrictions and business shutdowns in responses to the COVID-19 epidemic – not an indicator of long-term economic slowdown.
Another indication that the economic pullback in 2020 was only a temporary event is the relationship between the GO and GDP decline during that period. 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%. The 2020 economic slowdown broke from this pattern and saw GO decline at similar rates as the GDP. Over the last three quarters, GO has been recovering and expanding faster than GDP.

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 assessing 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 second-quarter 2022, nominal B2B activity rose 13.4% on an annualized basis to reach $34 trillion. This B2B growth in nominal terms lagged slightly behind consumer spending expansion, which increased 14.2% and reached $17.3 trillion in the second quarter. However, in real terms B2B expenditures grew 3.15%, more than triple the 0.9% real consumer spending growth.

“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,” stated Skousen. “Business spending continues to expand at a faster pace than consumer spending, which is one good indicator for the longer-term economic outlook.”

While GDP includes only a small portion of investment spending, Gross Output 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 2022 GDP on October 27, 2022. The full release of Gross Output data and the third estimate of GDP are scheduled for December 22, 2022.

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 the general decline in the first two periods of 2020 and a robust recovery following that contraction, all but one sector and most subsectors of the economy expanded in Q2 2022.

Following a 43% annualized growth in the last-quarter 2021 and another expansion of 40% in the first-quarter 2022, the Mining sector delivered an annualized upsurge of 37.2% in nominal terms. While all three subsectors – Oil and Gas Extraction; Mining, except Oil and Gas; and Support Activities for Mining – expanded, the sector growth was driven primarily by the Oil and Gas Extraction segment, which benefited from high oil prices. The mining sector is small, and accounts for 2.1% share of the overall economy as measured by Gross Output. However, the sector represents one of the earliest stages of production. Therefore, we keep an eye on the expansion and contraction of the Mining segment, which can be an early indicator and a good predictor of which direction other sectors further down the supply chain might be headed in subsequent periods.

With a 1.4% share of the overall economy, the Agriculture sector is another small-share segment in the early stages of production that can be used as an early indication of future movements in the overall economy. After contracting 1.3% in the last period of 2021, the Agriculture sector expanded for the second consecutive period and delivered a 13.1% expansion in Q2 2022.

After reversing two periods of marginal growth with three quarters of double-digit growth, Manufacturing – the second largest segment of the economy with a 16% share of the economy – increased nearly 17% in Q2 2022.  Nondurable Goods increased 14.9% and Durable Goods Manufacturing expanded 18.7%.

Additionally, the Construction sector, which accounts for nearly 5% of the economy, followed up two periods of double-digit growth with an expansion of 11.7% in Q2 2022. The Retail and Wholesale trade sectors continued their above-average growth over the last few periods by expanding in the second period 2022 5.7% and 5.6% respectively.

Finance, Insurance, Real estate, Rental, and Leasing are the largest segment that accounts for nearly 18% of the economy. After expanding over the previous two periods, the segment contracted 2% in Q2 2022. While the Real Estate, Rental, and Leasing subsegment expanded at a healthy rate of 11.5%, it was unable to overcome the contraction of nearly 19% by the Finance and Insurance subsegment, which drove the overall segment slightly negative for the period.

While contracting nearly 6% in Q2 2020 amid the economic shutdown, Government has been expanding at record rates. Not only has it been expanding, but the expansion rates have accelerated over the last three periods, After growing 6.1% and 8.2% in Q4 2021 and Q1 2022, respectively, total government spending increased by more than 21% in the second-quarter 2022,

Over the past few periods, spending at the State and Local levels tended to outpace spending at the federal level by a two-to-one margin. However, in Q2 2022 spending at both levels expanded at similar rates. While Federal government expanded 21%, State and Local government spending expanded 21.4% in the second-quarter 2022.

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/

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:  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].

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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 2022 second quarter is nearly $46 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to more than $57 trillion in Q2 2022. Thus, the BEA omits more than $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.

GDP is slumping, but there’s a better way to gauge the economy.

By Mark Skousen

Originally appeared in the Wall Street Journal on Aug. 10, 2022 and on wsj.com

How can the U.S. be in a recession when the number of jobs is growing at a healthy clip? According to the National Bureau of Economic Research, two consecutive quarters of declining real gross domestic product is enough for a recession. The Bureau of Economic Analysis (BEA) reported just that—real GDP declined at an annual rate of 1.6% in the first quarter and 0.9% in the second.

But a host of statistics suggest that the economy is still growing, not the least of which is last week’s robust jobs report and unemployment rate. While the Conference Board’s leading economic indicator suggests a mild recession may be on the way, it reports: “The coincident economic index which rose in June suggests the economy grew through the second quarter.”

The BEA also produces a statistic called gross domestic income, which adds up wages, profits and other income. Theoretically it should align with GDP, but it no longer does. Real GDI rose 1.8% in the first quarter, and is expected to have risen slightly in the second quarter (the official number will be announced on Aug. 25). Economists have noted the unprecedented gap between GDP and GDI. The BEA uses different surveys to come up with GDI, but the growing gap can’t be explained by a statistical “discrepancy.”

In addition, the relatively new statistic gross output, or GO—which measures spending at all stages of production, including the supply chain—rose at an annual rate of 2% in real terms in the first quarter. Second-quarter GO won’t be released until Sept. 29.

Why is GO a better measure of the economy than GDP? Because GDP has a serious flaw—it leaves out the supply chain. It accounts for final output only, finished goods and services bought by consumers, business and government. Intermediate production—all the goods in process along the way—are ignored.

That means that GDP only measures about 44% of economic activity. According to the BEA, intermediate production amounted to $19.5 trillion in the past year, compared with $24.8 trillion GDP. For technical reasons, that former figure leaves out an additional $11 trillion of wholesale and retail trade.

For several years, I’ve championed GO as the “top line” in national income accounting and a better snapshot of the economy. Many economists consider it a better, more comprehensive measure than GDP. The biggest drawback is the BEA’s delays in releasing GO two months after the initial estimates of GDP.

For decades, publicly traded companies have released their earnings reports every quarter, reporting sales (top line) and earnings (bottom line) at the same time. The federal government should do the same. It’s time national income accounting caught up with the accounting profession.

Mr. Skousen holds the Doti-Spogli chair in free enterprise at Chapman University, is editor of Forecasts & Strategies and author of “The Structure of Production.”

Washington, DC (Wednesday, June 29, 2022): Today, the federal government released gross output (GO) – the measure of total spending in the economy – for the 1st quarter 2022. Real GO rose 2.0% (after inflation).

Surprisingly, GO was positive while GDP was negative (in real terms), signifying that the economic conditions in the US are not as bad as many predicted.  Whenever GO rises faster than GDP, it suggests that the economy is doing better.  

The increase in nominal and real GO does not suggest a robust recovery, however. The increase in GO marks the fourth quarter in decline, equal to the average tepid growth rate over the five years prior to the economic downturn in 2022.

In addition to returning to its “normal” range, the Gross Output growth rate was higher than the real GDP, which contracted 1.6% in the first period 2022. Furthermore, after trailing the GO growth rate over the past couple periods, the Adjusted Gross Output (GO*) expanded 3.9%, which is the prevailing historical trend.

in the previous fourth-quarter 2021 GO expanded at a lower rate than GDP, which generally indicate a negative GDP outlook for the following quarter’s GDP. Indeed, real GDP for the 1^st quarter fell by 1.6% on an annualized basis. 

The GO growth rate for Q1 2022 indicates a positive GDP outlook for the second quarter, and we should expect a positive GDP growth when the Bureau of Economic Analysis (BEA) releases its second quarter 2022 advance GDP estimates on July 28.

One atypical factor in our model is the impact of pandemic-related issues, such as higher interest rates, price inflation, and continued supply-chain shortages. All these factors could skew the results.

However, business-to-business (B2B) spending continues to outpace consumer spending, which is a good indicator that the business sector has a high level of confidence that the economy will most likely deliver a decent recovery in place of the previously-projected severe recession. As indicated by the graph in the “Business – Not Consumers – Drives the Economy”, B2B spending is expanding at a faster rate than consumption, which is positive indicator for the future. 

Most economists use only GDP and disregard GO when gauging economic outlook. However, Gross Output (GO) is the top line in national income accounting; 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.”

Steve Forbes puts it another way: GDP is the X-ray of the economy; GO is the CAT-scan. 

In nominal terms, first-quarter 2022 GDP rose 6.4% and GO grew 12.0%. The Adjusted Gross Output (GO*) – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) advanced 13.9% in the first period 2022. The difference between net and gross figures amounts to almost $11 trillion, which is missing from the government’s official GO figure, but we include it in our Adjusted GO measure.

With the exception of fourth quarter 2021 when consumer spending outpaced business spending, consumer spending has trailed business spending expansion in five out of the last six periods, which includes the first quarter 2022. This is a positive early indication that, after contracting in the first quarter 2022, GDP should return to expanding, albeit at rates that are slightly lower than historical trends on the account of economic headwinds from higher interest rates, increased prices and persistent obstacles in the global supply chain.

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 assessing 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 first quarter 2022, B2B activity rose 19.85% on an annualized basis to nearly $39 trillion in nominal terms. This growth is significantly faster than consumer spending expansion, which increased 8.7% to $16.7 trillion in the first quarter. However, the discrepancy is really revealing in real terms. While real B2B activity expanded 11.6% to $26.6 trillion, real consumer spending contracted 1.2% from $13.53 in Q4 2021 to $13.49 trillion in Q1 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,” stated Skousen. “Business spending continues to expand at a faster pace than consumer spending, which is one good indicator for the longer-term economic outlook.”

While GDP includes only a small portion of investment spending, Gross Output 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 2022 GDP on July 28, 2022. The full release of Gross Output data and the third estimate of GDP are scheduled for September 29, 2022.  

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 the general decline in the first two periods of 2020 and a robust recovery following that contraction, most sectors of the economy continued to expand in the first period of 2022.

Following a rapid decline in the first half of 2020 the Mining sector followed a 43% annualized growth in Q4 2021 with another expansion of 40% in Q1 2022. The growth was distributed across all three subsectors – Oil and gas extraction; Mining, except oil and gas; and Support activities for mining – which expanded 36.9%, 50.5% and 44.9%, respectively. While the mining sector comprises only a 1.5% share of the overall economy as measured by Gross Output, the sector represents one of the earliest stages of production. Therefore, we watch the expansion and contraction of the Mining segment as early indicators of what other sectors further down the supply chain might do in subsequent periods.

Another small-share segment in the early stages of production – 1.3% of the overall economy – is the Agriculture sector. After contracting 1.3% in the last period of 2021, the Agriculture sector expanded 36.4% to begin 2022.

After reversing two periods of marginal growth with a 15.6% growth in Q3 2021 and a 17.2% expansion Q4 2021, manufacturing – the second largest segment of the economy with a 15.3% share – increased nearly 18% to start 2022.  Nondurable goods increased 21.9% and Durable goods manufacturing expanded 13.8%. Every manufacturing subsector contributed to the sector’s overall growth with the       Petroleum and coal products expanding the most at 89%.

The Retail and Wholesale trade sectors followed last-period 2021 expansions of 9.6% 14.5%, with even faster growth tares of 25.9% and 13.1%, respectively, in the first period 2022. Additionally, the Construction sector, which accounts for nearly 5% of the economy, followed up a 10% increase in the previous period with a 13.1% expansion in Q1 2022.

Accounting for nearly 20%, Finance, insurance, real estate, rental, and leasing is the largest segment of the economy. After increasing 6% in the previous period, the segment expanded 5% in Q1 2022.  While Insurance carriers and related activities grew at a healthy rate of 16.1%, a 27.3% decline in Securities, commodity contracts, and investments resulted in the minor contraction of Finance and insurance subsegment. However, the Real estate and rental and leasing subsegment, which is more than half of the segment’s transactions, followed a 9.1% expansion last period with a 9.2% expansion and managed to keep the overall segment in the positive.

Since contracting nearly 6% in Q2 2020 amid the economic shutdown, government spending has been expanding at record rates. In the first period 2022, overall government spending expanded 8.2% on an annualized basis. This is the second highest government spending expansion since at least 2005, exceeded only by the 11.8% expansion in the first quarter 2022.

Federal government spending expanded nearly 2% in the first period of 2022. While National defense spending declined 0.7%, increased spending on Nondefense spending – up 4.9% – and Government enterprises items – 1.6% higher – drove the overall expansion of government spending.

Despite spending at the federal level expanding less than 2%, government spending at state and local levels expanded nearly 11% and drove overall government spending to expand more than 8% in the first period of 2022.

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

NEW!  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:  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 2022 first quarter is $44.23 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to more than $55 trillion in Q1 2022. Thus, the BEA omits more 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.

Washington, DC (Wednesday, June 29, 2022): Today, the federal government released gross output (GO) – the measure of total spending in the economy – for the 1st quarter 2022. Real GO rose 2.0% (after inflation).

Surprisingly, GO was positive while GDP was negative (in real terms), signifying that the economic conditions in the US are not as bad as many predicted.  Whenever GO rises faster than GDP, it suggests that the economy is doing better.  

The increase in nominal and real GO does not suggest a robust recovery, however. The increase in GO marks the fourth quarter in decline, equal to the average tepid growth rate over the five years prior to the economic downturn in 2022.

In addition to returning to its “normal” range, the Gross Output growth rate was higher than the real GDP, which contracted 1.6% in the first period 2022. Furthermore, after trailing the GO growth rate over the past couple periods, the Adjusted Gross Output (GO*) expanded 3.9%, which is the prevailing historical trend.

in the previous fourth-quarter 2021 GO expanded at a lower rate than GDP, which generally indicate a negative GDP outlook for the following quarter’s GDP. Indeed, real GDP for the 1^st quarter fell by 1.6% on an annualized basis. 

The GO growth rate for Q1 2022 indicates a positive GDP outlook for the second quarter, and we should expect a positive GDP growth when the Bureau of Economic Analysis (BEA) releases its second quarter 2022 advance GDP estimates on July 28.

One atypical factor in our model is the impact of pandemic-related issues, such as higher interest rates, price inflation, and continued supply-chain shortages. All these factors could skew the results.

However, business-to-business (B2B) spending continues to outpace consumer spending, which is a good indicator that the business sector has a high level of confidence that the economy will most likely deliver a decent recovery in place of the previously-projected severe recession. As indicated by the graph in the “Business – Not Consumers – Drives the Economy”, B2B spending is expanding at a faster rate than consumption, which is positive indicator for the future. 

Most economists use only GDP and disregard GO when gauging economic outlook. However, Gross Output (GO) is the top line in national income accounting; 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.”

Steve Forbes puts it another way: GDP is the X-ray of the economy; GO is the CAT-scan. 

In nominal terms, first-quarter 2022 GDP rose 6.4% and GO grew 12.0%. The Adjusted Gross Output (GO*) – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) advanced 13.9% in the first period 2022. The difference between net and gross figures amounts to almost $11 trillion, which is missing from the government’s official GO figure, but we include it in our Adjusted GO measure.

With the exception of fourth quarter 2021 when consumer spending outpaced business spending, consumer spending has trailed business spending expansion in five out of the last six periods, which includes the first quarter 2022. This is a positive early indication that, after contracting in the first quarter 2022, GDP should return to expanding, albeit at rates that are slightly lower than historical trends on the account of economic headwinds from higher interest rates, increased prices and persistent obstacles in the global supply chain.

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 assessing 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 first quarter 2022, B2B activity rose 19.85% on an annualized basis to nearly $39 trillion in nominal terms. This growth is significantly faster than consumer spending expansion, which increased 8.7% to $16.7 trillion in the first quarter. However, the discrepancy is really revealing in real terms. While real B2B activity expanded 11.6% to $26.6 trillion, real consumer spending contracted 1.2% from $13.53 in Q4 2021 to $13.49 trillion in Q1 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,” stated Skousen. “Business spending continues to expand at a faster pace than consumer spending, which is one good indicator for the longer-term economic outlook.”

While GDP includes only a small portion of investment spending, Gross Output 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 2022 GDP on July 28, 2022. The full release of Gross Output data and the third estimate of GDP are scheduled for September 29, 2022.  

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 the general decline in the first two periods of 2020 and a robust recovery following that contraction, most sectors of the economy continued to expand in the first period of 2022.

Following a rapid decline in the first half of 2020 the Mining sector followed a 43% annualized growth in Q4 2021 with another expansion of 40% in Q1 2022. The growth was distributed across all three subsectors – Oil and gas extraction; Mining, except oil and gas; and Support activities for mining – which expanded 36.9%, 50.5% and 44.9%, respectively. While the mining sector comprises only a 1.5% share of the overall economy as measured by Gross Output, the sector represents one of the earliest stages of production. Therefore, we watch the expansion and contraction of the Mining segment as early indicators of what other sectors further down the supply chain might do in subsequent periods.

Another small-share segment in the early stages of production – 1.3% of the overall economy – is the Agriculture sector. After contracting 1.3% in the last period of 2021, the Agriculture sector expanded 36.4% to begin 2022.

After reversing two periods of marginal growth with a 15.6% growth in Q3 2021 and a 17.2% expansion Q4 2021, manufacturing – the second largest segment of the economy with a 15.3% share – increased nearly 18% to start 2022.  Nondurable goods increased 21.9% and Durable goods manufacturing expanded 13.8%. Every manufacturing subsector contributed to the sector’s overall growth with the       Petroleum and coal products expanding the most at 89%.

The Retail and Wholesale trade sectors followed last-period 2021 expansions of 9.6% 14.5%, with even faster growth tares of 25.9% and 13.1%, respectively, in the first period 2022. Additionally, the Construction sector, which accounts for nearly 5% of the economy, followed up a 10% increase in the previous period with a 13.1% expansion in Q1 2022.

Accounting for nearly 20%, Finance, insurance, real estate, rental, and leasing is the largest segment of the economy. After increasing 6% in the previous period, the segment expanded 5% in Q1 2022.  While Insurance carriers and related activities grew at a healthy rate of 16.1%, a 27.3% decline in Securities, commodity contracts, and investments resulted in the minor contraction of Finance and insurance subsegment. However, the Real estate and rental and leasing subsegment, which is more than half of the segment’s transactions, followed a 9.1% expansion last period with a 9.2% expansion and managed to keep the overall segment in the positive.

Since contracting nearly 6% in Q2 2020 amid the economic shutdown, government spending has been expanding at record rates. In the first period 2022, overall government spending expanded 8.2% on an annualized basis. This is the second highest government spending expansion since at least 2005, exceeded only by the 11.8% expansion in the first quarter 2022.

Federal government spending expanded nearly 2% in the first period of 2022. While National defense spending declined 0.7%, increased spending on Nondefense spending – up 4.9% – and Government enterprises items – 1.6% higher – drove the overall expansion of government spending.

Despite spending at the federal level expanding less than 2%, government spending at state and local levels expanded nearly 11% and drove overall government spending to expand more than 8% in the first period of 2022.

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

NEW!  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:  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 2022 first quarter is $44.23 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to more than $55 trillion in Q1 2022. Thus, the BEA omits more 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.

Dear friends of FreedomFest,

The excitement is building for our July 13-16 intellectual feast at the Mirage in Las Vegas. The complete agenda with 250 speakers will be posted in a few days at www.freedomfest.com, but here are a few sessions that might interest you.

Wednesday, July 13

Wednesday, July 13, 1:00-1:50 p.m. Jim Woods, co-editor of Fast Money Alert, on “My Favorite Technique to Make Money,” followed by a discussion with the legendary Jim Rogers on “Which Offers a Better Investment Opportunity, the USA or Emerging Markets?” Moderated by Roger Michalski.

Thursday, July 14

Friday, July 15

Saturday, July 16

Register This Week and Get $50 Off

Washington, DC (Wednesday, March 30, 2022): Today, the federal government released gross output (GO) – the measure of total spending in the economy – for the 4^th quarter 2021. Real GO rose 3.8% (after inflation), which was another indication of a slowdown in the economy compared to the 4.4% growth in the previous quarter.

Furthermore, the GO growth rate is now less than real GDP (6.9%).  This is the first time in over a year that quarterly GO grew less than GDP, a clear sign of a slumping economy. It confirms the “GDP Now” forecast of less than 1% growth for the first quarter.

GO is a leading indicator of economic growth (GDP) in subsequent quarters. 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.” See his summary of GO’s value here:  https://www.youtube.com/watch?v=UbV14VK4QBM

According to our model, whenever quarterly GO grows at a slower pace less than GDP, the outlook for the next quarter’s GDP is downward. If GO outpaces GDP, it means a positive outlook for the next quarter’s GDP. For most of 2021 GO was growing faster than GDP, suggesting a strong recovery. But in the face of higher interest rates, price inflation, and continued supply-chain shortages, the outlook has turned slightly negative. 

More economists are focusing on GO as a way to gauge the direction of the economy.  They recognized gross output (GO) as the top line in national income accounting, and GDP is the bottom line. As Dale Jorgenson, Steve Landefeld, and William Nordhaus note in their book, A New Architecture for US National Accounts, “Both are required in a complete system of accounts.” As Steve Forbes states, “GDP is the X-ray of the economy; GO is the CAT-scan.”

Figures in billions $, except percentages

In nominal terms, fourth-quarter 2021 GDP rose 13.8% and GO grew 11.1%. The Adjusted Gross Output (GO*) – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) – advanced 11.9% in the last quarter 2021. The difference between net and gross figures amounts to more than $10 trillion, which is missing from the government’s official GO figure.

Business Investment is Doing Better than Consumer Spending

One silver lining suggests that the slowdown will not turn into a full-blown recession:  business-to-business (B2B) spending continues to outpace consumer spending. As the graph below shows, both are growing at a slower pace, but B2B is doing better than consumption. That’s positive for the future.  

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 assessing 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 2021, B2B activity rose 13.5% on an annualized basis to $31.32 trillion in nominal terms. This growth is significantly faster than the growth of consumer spending, which increased 8.8% to $16.31 trillion in the fourth quarter. However, the discrepancy is even more pronounced in real terms. While real B2B activity expanded 6.5% to $25.82 trillion, real consumer spending expanded just 1.4% from $13.479 in Q3 to $13.53 trillion in the Q4. 

“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,” stated Skousen. “Business spending continues to expand at a faster pace than consumer spending, which is one good indicator for the longer-term economic outlook.”

While GDP includes only a small portion of investment spending, Gross Output accounts for significantly more of the business investment outlays, which tend to indicate economic direction over extended periods.

The federal government will release the advance estimate for first-quarter 2022 GDP on April 28, 2022. The full release of Gross Output data and the third estimate of GDP are scheduled for June 29, 2022.  

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.  A simultaneous release date will be most helpful to economic forecasters. 

Report on Various Sectors of the Economy

After the general decline in the first two periods of 2020 and a robust recovery in the second half of that year, most sectors of the economy continued to expand in 2021.

Following a rapid decline in the first half of 2020, the Mining sector continued its expansion with a 43% annualized growth rate in Q4 2021. This result was driven by the oil and gas extraction sub-segment, which expanded more than 56% over the previous period and which accounts for nearly 65% of the entire Mining sector. While the mining sector comprises only a 1.5% share of the overall economy as measured by GO, the sector represents one of the earliest stages of production. Therefore, we watch the expansion and contraction of the Mining segment as early indicators of what other sectors further down the supply chain might do in subsequent periods.

Following two periods of contracting at less than 2%, Manufacturing – the second largest segment of the economy with a 15.6% share – expanded more than 17% in the fourth quarter. While few of the sub-segments contracted – Computer and electronic products (-11.2%), Furniture and related products (-4.6%) – the Manufacturing segment expanded on the strength of some of its other sub-segments. The Fabricated metal products sub-segment grew 31%, Motor vehicles, bodies and trailers, and parts expanded 29.2%, Nonmetallic mineral products advanced 26.1%, and Electrical equipment, appliances, and components increased 25.3%.

The Retail trade sector expanded 9.6%, and the Wholesale trade grew 14.5%. Additionally, after two consecutive contraction periods the Construction sector, which accounts for nearly 5% of the economy, increased almost 10% in the fourth quarter.

Another small-share segment – 1.3% of the overall economy – in the early stages of production is the Agriculture sector, which has been contracting steadily over the past four quarters. However, the rate of contraction is getting smaller. After contracting 5.7% in Q1, 4.1% in Q2, and 3.6% in Q3 2021, the segment declined only 1.3% in the last period of 2021. Another segment that contracted in the fourth period was Management of companies and enterprises sector (-4.9%).

After contracting in four out of the last five periods, Federal government spending expanded nearly 3% in the last period of 2021. Despite a 1.2% reduction in National defense spending, the overall spending at the federal level increased of expanded spending on Nondefense items and Government enterprises.

While spending at the federal level expanded less than 3%, a 7.6% increase in government spending at state and local levels drove overall government spending to increase 6.1% for the last period of 2021.

Since contracting more than 17% in Q2 2020, government at the State and local levels has been expanding at an average annualized rate of 8.6% over the past six quarters.          

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

NEW!  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:  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].

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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 2021 fourth quarter is $43.00 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $53.2 trillion in Q4 2021. Thus, the BEA omits more than $10 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.

Good news! The brand-new fourth edition of “The Making of Modern Economics” has just been published by the prestigious publisher Routledge (publisher of the works of Friedrich Hayek).

And it’s available for half off the retail price and shipping! 

Guess who the hero is of my book? See the cover below.

It is now the most popular history textbook of the great economic thinkers used in the classroom. As Roger Garrison, professor at Auburn University, states, “My students love it. Skousen makes the history of economics come alive like no other textbook.”

But it’s not just a book for students and academics. People of all walks of life enjoy reading it. As John Mackey, CEO of Whole Foods Market, says, “Mark’s book is fun to read on every page. I have read it three times. I love this book and have recommended it to dozens of my friends.” 

It’s unique in that you can jump around and read any chapter you want; each chapter stands on its own; and it’s loaded with stories, anecdotes, humorous episodes, pictures and even musical selections for each chapter. 

Winner of Several Awards

The book is award-winning. It has won the Choice Book Award for Academic Excellence, and it was ranked #2 Best Libertarian Books in Economics by the Ayn Rand Institute (behind Henry Hazlitt’s “Economics in One Lesson”). It was the Main Selection of the Boulder Book Club.

If you order directly from me you save half off the publisher’s price and shipping – you pay only $35, and I pay the postage and autograph each copy. To order, go to www.skousenbooks.com.

A Rarely-Told Story of High Drama

First and foremost, the book tells the remarkable untold story of free-market capitalism’s long-running battle against Keynesianism, Marxism, socialism and other isms. It is an account of high drama with a singular heroic figure, Adam Smith and his celebrated “system of natural liberty.” The running plot involves many unexpected twists and turns; sometimes our hero is left for dead, only to be resuscitated by his free-market friends; the story even has a surprise ending.

A Full-Scale Critique of All Major Doctrines

All previous histories tend to give a dry, disjointed, and helter-skelter account of economists and their contradictory theories. But I unify the story of economics by ranking all major economic thinkers either for or against the invisible hand doctrine of Adam Smith. Thus, Marx, Veblen and Keynes are viewed as critics of Smith’s doctrine, while Marshall, Hayek and Friedman are seen as supporters.

Using this ranking system, The Making of Modern Economics offers a full-scale review and critique of every major school and their theories, including classical, Keynesian, monetary, Austrian, institutionalist and Marxist.

A Complete History

Skousen’s history is comprehensive. He makes a point of discussing all schools of economics and not just the ones he agrees with. Too many economists have omitted major characters from the history of economics, a practice bordering on intellectual dishonesty. Robert Heilbroner’s popular book, The Worldly Philosophers, for example, virtually ignores the laissez-faire French, Austrian and Chicago traditions. (His latest edition does not even mention Milton Friedman by name!)

Think of The Making of Modern Economics as a contra-Heilbroner history.

It’s a perfect antidote to all those biased, inaccurate attacks on the free market and its proponents.

The book records the lives and ideas of important economists often ignored in other histories, such as Montesquieu, Ben Franklin, J. B. Say, Frederic Bastiat, Friedrich List, Herbert Spencer, Ludwig von Mises, Knut Wicksell, Philip Wicksteed, Max Weber, Irving Fisher, Roger Babson, Frederick Taylor, A. C. Pigou, Joan Robinson, Paul Sweezy, Paul Samuelson and Murray Rothbard.

My book also restores the vital role of the Austrian and Swedish schools in the marginalist revolution and the development of monetary economics. It emphasizes the impact of other disciplines on economics, such as evolution, sociology, and religion.

“Tell All” Biographies

Skousen’s book brings history alive with exciting new insights into the lives of the great economists through in-depth biographies and the author’s own research, revealing an amazing tale of idle dreamers, academic scribblers, occasional quacks and madmen in authority.

The Making of Modern Economics does its best to entertain, with provocative sidebars, humorous anecdotes, even music selections reflecting the spirit of each major economist. Samples:

Why Adam Smith burned his clothes…and then burned his papers.

The “satanic verses” of the poet Karl Marx.

Were Malthus, Ricardo, Marshall and Keynes anti-female?

The infamous grading technique of Chicago’s Jacob Viner (he regularly flunked a third of his class).

The sexual scandals of Karl Marx, Carl Menger, Joseph Schumpeter and Friedrich Hayek.

The story behind Marx the phrenologist, Jevons the astrologer, Keynes the palm reader, and Friedman the amateur hand-writing analyst.

Which famous economist is buried next to rock star Jim Morrison in Paris?

How Darwin and Wallace discover their theory of evolution after reading Malthus.

Why Malthus and the doomsdayers have been proven wrong about overpopulation and environmental crises.

The strange case of David Ricardo: Why Schumpeter, Keynes, and Samuelson admired him–and deplored him.

Why Malthus refused to have his portrait made until age 67.

Why Hayek blames John Stuart Mill, a hero of classical liberalism, for popularizing socialism among intellectuals in the 19th century.

The real origin of the epithet “dismal science,” and why critics are now calling economics the “imperial” science, with ever-increasing applications in law, finance, history, and politics.

How John Stuart Mill and the disciples of David Ricardo became hostage to the Marxists, and how Carl Menger and the Austrians revived the laissez faire model of Adam Smith from oblivion.

The inside story of three multi-millionaire economists–David Ricardo, Irving Fisher and John Maynard Keynes.

The bizarre story of Jeremy Bentham: from democratic reformist to utilitarian fascist.

The socialist origins of the American Economic Association and the London School of Economics.

Veblen’s incredible prophecies about World War I and II.

Thorstein Veblen versus Max Weber: Who had a better vision of capitalism?

How Irving Fisher became an advisor to the fascist Mussolini.

The little-known story of how the economics establishment in the West (including economists at Cambridge, Harvard and Yale) failed to forecast the 1929-32 economic collapse.

How Austrian economists Ludwig von Mises and Friedrich Hayek were able to predict the 1929-33 crisis, yet failed to convince the world of their theories.

How the 1929 crash served as a catalyst for Keynes’s “general theory.”

How Keynes saved the world from Marxism in the 1930s.

The truth about Keynes’s homosexuality and the rumor that his Cambridge colleague, A. C. Pigou, was a Soviet spy.

Gross Domestic Product (GDP)–how a Keynesian statistic was invented by a Russian.

How Irving Fisher’s misinterpretation of his quantity theory of money led to his losing a fortune on Wall Street, and how Milton Friedman avoided repeating Fisher’s blunder.

Why Friedman and the Chicago school triumphed over Mises and the Austrian school in discrediting Keynesianism and restoring the Adam Smith model of market capitalism.

Fully Illustrated with Over 100 Photos, Portraits and Graphs

Finally, The Making of Modern Economics is the first fully-illustrated history of economics, with over 100 charts, portraits, and photographs, including a picture of….

…Keynes in bed (where he made his millions),

…Eugen Böhm-Bawerk in official regalia as finance minister of Austria,

…Alfred Marshall trying to hide his oversized left hand,

…the preserved body of Jeremy Benthem in London,

…the only known photograph of Irving Fisher smiling (before he lost millions in the stock market), and

…over 75 rare and unusual photos and portraits of famous economists.

Provocative Chapter Titles

Here are the titles of each chapter of The Making of Modern Economics:

1. It All Started with Adam (Adam Smith, that is)
2. The French Revolution: Laissez Faire Avance!
3. The Irreverent Malthus Challenges the New Model of Prosperity
4. Tricky Ricardo Takes Economics Down a Dangerous Road
5. Milling Around: John Stuart Mill and the Socialists Search for Utopia
6. Marx Madness Plunges Economics into a New Dark Age
7. Out of the Blue Danube: Menger and the Austrians Reverse the Tide
8. Marshalling the Troops: Scientific Economics Comes of Age
9. Go West, Young Man: Americans Solve the Distribution Problem in Economics
10. The Conspicuous Veblen Versus the Protesting Weber: Two Critics Debate the Meaning of Capitalism
11. The Fisher King Tries to Catch the Missing Link in Macroeconomics
12. The Missing Mises: Mises (and Wicksell) Make a Major Breakthrough
13. The Keynes Mutiny: Capitalism Faces its Greatest Challenge
14. Paul Raises the Keynesian Cross: Samuelson and Modern Economics
15. Milton’s Paradise: Friedman Leads a Monetary Counterrevolution
16. The Creative Destruction of Socialism: The Dark Vision of Joseph Schumpeter
17. Dr. Smith Goes to Washington: Market Economies Face New Challenges

Get 50% off (when accounting for free shipping)Thomas by ordering it from the Author

Routledge charges $54.95, plus shipping, but you can buy it directly from the author for only $35. Each copy is autographed, dated and mailed for no extra charge if mailed inside the United States.

To buy your copy, go to www.skousenbooks.com.

Yours for peace, prosperity, and liberty, AEIOU

Today is the 316^th anniversary of the birth of founding father extraordinaire Benjamin Franklin (1706 – 1790). Franklin was an inventor, the first scientific American, the first diplomat of the United States, the first postmaster and a signer of both the Declaration of Independence and the Constitution. He was also the first President of the Pennsylvania Society for Promoting the Abolition of Slavery.

Michael Hart, the author of “The 100 Most Influential People in History,” considered Franklin to be “the most versatile genius in all of history.”

And the historian H. W. Brands considered Franklin “perhaps the most beloved and celebrated American of his age, or indeed any age.”

For investors, he was the founder of American capitalism and extolled the virtues of industry, thrift and prudence.

In his Autobiography and his “Poor Richard’s Almanac,” he was also famous for his pithy proverbs, financial adages and worldly wisdom.


Mark Skousen (aka Ben Franklin) and Eagle Financial Publication’s editor Paul Dykewicz.

As a direct descendant and a frequent portrayer of Ben Franklin, I have been collecting dozens of his sayings in my “Maxims of Wall Street.” In fact, Franklin is quoted more than any other financial guru except for Warren Buffett and Jesse Livermore.

Here are some great quotes from Franklin that apply to our personal lives and our nation:

“There is much revenue in economy, and no revenue is sufficient without economy.”

“Those who would give up essential liberty, to purchase a little temporary safety, deserve neither liberty nor safety.”

“I am a mortal enemy to arbitrary government and unlimited power. I am naturally very jealous for the rights and liberties of my country, and the least encroachment of those invaluable privileges is apt to make my blood boil.”

“A virtuous and industrious people may be cheaply governed.”

“The system of America is commerce with all and war with none.”

“A fool and his money are soon parted.”

“An investment in knowledge pays the best interest.”

“Nothing but money is sweeter than honey.”

“Patience in market is worth pounds in a year.”

“Haste makes waste.”

“It is incredible the quantity of good that may be done in a country by a single man who will make a business of it.”

“I saw in the public papers of different states frequent complaints of hard times, deadness of trade, scarcity of money, etc. It is always in the power of a small number to make a great clamor. But let us take a cool view of the general state of our affairs, and perhaps the prospect will appear less gloomy than has been imagined.”

And finally, “The years roll round and the last will comes; when I would rather have it said, He lived usefully, than he died rich.”

Half Off for ‘Maxims of Wall Street’

If you haven’t received the latest 10^th-anniversary edition of “The Maxims of Wall Street,” buy it today! Go to www.skousenbooks.com. The price is low, only $20 for the first copy, and $10 for all additional copies. They make great gifts. If you buy an entire box (32 copies), the price is only $300. I sign all books and pay for the postage if mailed in the United States.

P.S. I will be hosting a subscribers-only teleforum called “What’s New in Crypto & Our #1 Pick” on Jan. 27 at 2 p.m. Click here to register for free.

Until next Monday, this is Mark Skousen, saying so long, fellow free-marketeers, and remember, AEIOU.