Dear friends,
Good news! For the first time, the federal government (BEA) has released the “top line” gross output (GO) at the same time as the “bottom line” GDP. For years, publicly-traded companies have simultaneously posted the top line (sales/revenues) and the bottom line (earnings/net income) every quarter. Now finally the government is releasing GO and GDP every quarter in national income accounting.
Economics finally caught up with accounting and finance!
I call GO the missing piece in the macroeconomic puzzle.
Several events mark the GO-Day Celebration.
1. The Wall Street Journal published my op on this milestone in national income accounting on Saturday, October 3. The WSJ op ed is published on line and in the print edition. This is the third time they have carried my articles on GO. See the article in full below.
2. Steve Forbes released his 3-minute “What’s Ahead” podcast on “Gross Output vs GDP: Which Measure is Better?” — it’s the best summary of GO I’ve ever watched. Watch it here: https://www.youtube.com/watch?v=WoYF-ous_mU
3. My press release offers more detail and useful charts at www.grossoutput.com.
4. In celebration of this special occasion (the first time the government has released GO and GDP on the same day), I hosted a 1-hour webinar on GO Day with panelists Steve Forbes, Sean Flynn (Scripps College and primary writer of the McConnell Brue Flynn textbook), David Ranson (chief economist, HCWE, Inc.), and Steve Hanke (Johns Hopkins University). The webinar was courtesy of Chapman University.
You can watch it here: https://chapman.zoom.us/rec/share/KJ17YjuR_6zthmgOA5fNprv2e65F-jICOsf430bJvnu8qWzdPYPfTohPC48qRLe9.Q8rmnlXynnTN74Tv?startTime=1601488807000
More economic analysts are now using it the forecast economic growth and the stock market, including David Ranson (HCWE, Inc.) and Jerry Bowyer, CEO of Bowyer Research. To read how they use GO in their forecasting models, go to “What Others Are Saying” at www.grossoutput.com.
New Stat Augurs Well for Covid Recovery
Gross output measures business confidence better than GDP. It’s fallen less than in past recessions.
By Mark Skousen
WALL STREET JOURNAL, Oct. 2, 2020
Wednesday was a big day for anyone with an eye on the economy. For the first time, the Bureau of Economic Analysis (BEA) released the “top line” gross output, or GO, at the same time as it published the “bottom line” gross domestic product. And the GO data brought a welcome surprise: It shows the economy is much more resilient than it looked.
Analyzing GO and GDP simultaneously is an essential way to know what is really going in the economy. The key is that GDP accounts for final output only: the finished goods and services bought by consumers, business and government. In contrast, GO measures total spending at all stages of the supply chain.
Steve Forbes offers a useful metaphor: “GDP is like an X-ray of the economy; GO is like a CAT-scan.” GO reveals a deeper level of economic activity and is therefore helpful in predicting the direction of growth, not only its current state.
GO is especially significant during downturns. In past recessions, GO declined much faster than GDP and gave an earlier view of the depth of the recession. During the financial crisis in the fourth quarter of 2008, GO fell 6.6%, compared with a 2% drop in GDP—more than three times as fast. The GO decline showed that even while consumer sales held up, businesses were slowing investment in future production.
In 2020, that trend is clearly reversed. In both the first and second quarters, GO fell slightly less than GDP. In the second quarter, real GO declined by 8.4% while real GDP decreased by 9% (in quarterly, nonannualized terms). GO didn’t collapse by multiples of GDP as it has in past recessions. The decline was close to 1-to-1, rather than 3-to-1.
What does this tell us? It’s clear that consumer spending dropped sharply in 2020 as a result of the lockdown, but businesses looked toward the long term, expected a recovery, and adjusted accordingly.
Jerry Bowyer, CEO of Bowyer Research, described the trend to me: “The lockdown was focused on sectors which were skewed towards final stage consumption, such as retail, entertainment and travel. Seeing that the shutdown was disproportionately skewed towards GDP world as opposed to the phases before that phase (GO), showed how the economy would be able to be more resilient in bouncing back than many anticipated.”
That’s good news, suggesting the recovery from this recession will be faster than most analysts thought. The sooner states open up their economies, the faster we will see a return to a dynamic American economy.
I do have one suggestion for the BEA: They need to report GO even more quickly each quarter. Have it come out the day the first estimate of GDP is released, not the third. Information is power.
Mr. Skousen is a presidential fellow at Chapman University, editor of Forecasts & Strategies, and author of “The Structure of Production.”
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved.
Appeared in the October 3, 2020, print edition.
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