Gross Output Indicates Slow Growth, But Recession is Still Threatening

Gross Output

“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


Washington, DC (Thursday, June 28, 2023): The U.S. economy is resisting recession, but is flashing red: Business spending (B2B) has dropped 9% in real terms over the past two quarters! Today, the federal government (BEA) released first quarter gross output (GO), the top line in national income accounting. GO measures spending at all stages of production. Real GO rose 2.7%, compared to 2.0% in real GDP (the bottom line). Consumer spending is still robust, rising over 6% during the past two quarters, but business spending is floundering. Nominal B2B spending has been flat since September, and in real terms, is down 9%. Recession is still in the near future.

After a mere 1.0% inflation-adjusted growth in the fourth period 2022, GO expanded  2.7% to $36.6 trillion in the first quarter 2023. In nominal terms, GO advanced 4.3% to $47.2 trillion. Both of these growth rates are above historical averages, which would generally indicate an expanding economy. However, a look at some of line-item details casts a doubt about economic expansion and indicated that a recession might be more likely outcome.

Following a 5.2% decline in real terms for the fourth quarter 2022, business (B2B) spending declined another 4% in the first quarter 2023, for a total decline of more than 9% over the past six months. This is an 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 – has serious concerns about the economy’s ability to expand in light of headwinds driven still by the aftermath of inflation, remaining supply-chain challenges, global economic outlook and other economic factors.

Federal Reserve’s tight money policy suggests also that the recession is coming. After raising the interest rate at the previous 10 meetings, the Federal Open Markets Committee (FOMC) decided not to raise the interest at its June meeting for the first time since beginning the current monetary tightening cycle in March 2022. Despite the June pause, FOMC members project a continuation monetary tightening with at least two more rate increases the target rate topping 5.6% in the second half of 2023.
Business spending is also significantly more volatile and more sensitive to economic fluctuations than consumption. Therefore, the contraction business spending over the past two quarters could be signal of an upcoming economic pullback.

Gross Output

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,  real GO’s fourth-quarter growth rate of 2.7% is slightly above the annualized GDP growth rate of 2.0%, which is usually a positive sign of an expanding economy.

However, compared to the BEA’s GO statistic of 2.7%, the real Adjusted Gross Output[1] (GO*) growth rate of 2.0% is nearly 26% lower, which can mean a stagnating economy. But the gap between GO and Adjusted GO is significantly smaller than it was in the previous period when the Adjusted GO growth rate was 50% lower than the GO growth rate.

Gross Output

GO growth outpacing GDP growth indicates an expanding economy. The adjusted GO lagging behind GO but outpacing GDP growth suggests sluggish growth. Lastly, the decline in business spending over the past two quarters signals a struggling economy and a potential recession in the second half of 2023 or early 2024. Second quarter GO data, which will not be available from the BEA until the end of September, might be able to sort out these mixed signals and offer a clearer indication about the direction of the economy over the subsequent few quarters.

In nominal terms, first-quarter 2023 GDP expanded 6.1% and GO grew just 4.3%. The Q1 2023 Adjusted GO – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) advanced 3.6% in nominal terms. 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. While extraordinary conditions, such as supply-chain irregularities and rising interest rates that still linger from pandemic-related issues, can cause minor deviation in the model, the impact is not as prominent as it was over the past couple of years.

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).

Gross Output

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 pulling back 1.6% in the fourth-quarter 2022, nominal B2B activity was completely flat at $33.65 trillion in the first quarter 2023. Unlike the struggling B2B spending, consumer spending continued expanding and grew 8.1% in nominal terms to $18.1 trillion. In real terms, Q1 2023 consumer spending increased 6.5% to just above $14 trillion.

“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 2023 GDP on July 27, 2023. The full release of Q2 Gross Output data, as well as the third estimate of GDP are scheduled for September 28, 2023.

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

After 11 of the economy’s 22 sectors experienced a pullback back in the last quarter of 2022, only five sectors in GO covered by the BEA contracted in the first-quarter 2023, which is a positive indication. However, four of those five declining sectors are in the early stages of production, which are better predictors for the direction of the economy over the next few periods.  

After breaking a streak of expansion over several periods with a 4% pullback in the fourth-quarter 2022, the Mining sector reversed direction again an grew in Q1 2023 at a substantial 12.2% in real terms. Despite accounting for merely 1.9% of the overall economy, the mining sector represents one of the earliest stages of production. Therefore, we track the movement of the Mining segment, which can be an early indicators and a good predictor of which direction other sectors further down the supply chain might be headed in subsequent periods.

As another segment in the early stages of production that can be used as an early indication of future movements in the overall economy, the Agriculture sector – 1.5% share of the economy – is even smaller than the Mining sector. Like the Mining sector, Agriculture followed a similar pattern over the last few periods. After expanding for three consecutive periods and shrinking 2.1% in Q4 2022, the  Agriculture, forestry, fishing, and hunting sector expanded 15.1% in real term for Q1 2023.

Manufacturing – the second largest segment with a 16% share of the economy – followed five consecutive quarters of growth with a 2% contraction in Q1 2023. Furthermore, the breakdown of the growth is of a larger concern. While Nondurable goods manufacturing expanded 2.7%, manufacturing of Durable goods declined 6.2%, which drove the overall contraction of the sector.

The Construction sector, which accounts for 3.5% of the economy, was pretty much flat with a marginal expansion of just 0.6% in Q1 20023. While this growth is indeed marginal, it marks another move in the right direction after last quarter’s decline of 1.7% was less than the 2.8% contraction in Q3 2022.

While the retail trade expanded 5.2% in Q1 2023 in real terms, the wholesale trade sectors delivered another contraction of 5.2% – same as the previous period – which is the fourth consecutive wholesale sector decline. Since the last quarter 2021, the wholesale sector declined 14.2% in real terms. Moreover, the Q1 2023 wholesale sector was lower than Q1 2022, which has happened only three other times since 2005. Each previous time that this has happened, the U.S. economy experienced either a recession – in 2009 and 2020, or a mini-recession and stock market sell-off – in 2015-2016.

The other two sectors that declined in Q1 2023 were Transportation and warehousing, which contracted 4.3% in real terms and Other services, except government, which shrank 2.7%

Finance, insurance, real estate, rental, and leasing is the largest segment that accounts for 17% of the economy. After a flat performance in the previous period, this sector expanded 6.3% in the first quarter 2023. This expansion was driven primarily by the 11% growth of the Finance and insurance subsegment. Real estate, rental, and leasing subsegment expanded as well, but only 2.8%.

The Educational services, health care, and social assistance segment, which comprises and 8% share of the total economy, grew 9.7% in real terms driven by the 10.3% growth of the Health care and social assistance subsegment.

Overall government followed a 3.4% expansion in the previous period with a 3.7% expansion in Q1 2023. Unlike the previous period when the state and local government growth outpaced federal government expansion two-to-one, all levels of government expanded approximately 3.7%.

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

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


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:


Emma Rothschild, “Where is Capital?” in Capitalism: A Journal of History and Economics 2:2 (Summer 2021), pp. 291-371.   “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:


Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019:


GO-Day podcast discussion panel hosted Mark Skousen that included Steve Forbes, Sean Flynn, Steve Hanke, and David Ranson, September 30, 2020:


The GO data released by the BEA can be found at 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:


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:

Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014:

Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”:

Mark Skousen, Forbes Magazine (December 16, 2013): “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,”

David Ranson, “Output growth data that the economy generates months earlier than GDP,” Economy Watch, July 24, 2017. HCWE & Co.

Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015:

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

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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 first quarter 2023 is more than $47.2 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to more than $58 trillion in Q1 2023. 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.

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