“By integrating the vital role of the supply chain into national income accounting, Mark Skousen’s development of gross output (GO) has created a more dynamic and broader view of the economy, and of the central role that business plays in national income, the business cycle and economic growth. I recommend that economists seriously consider his new approach to macroeconomics.”
– Finn Kydland, Professor of Economics, University of California at Santa Barbara, 2004 Nobel prize winner
“It’s at least conceivable that gross output is a leading indicator of the economy.”
– Peter Coy, Economics Editor, New York Times (Aug 7, 2023)
Washington, DC (Thursday, March 27, 2024):
Today the federal government (BEA) released 4th quarter gross output (GO), the top-line that measures spending at all stages of production. Adjusted real gross output (GO*) increased 1.9%. While delivering a positive result, the growth was substantially lower that the 3.0% expansion from the previous period. Real GDP outpaced GO* growth in the fourth quarter and expanded 2.4%. The GO trailing GDP growth indicates potential economic weakness. The main concern is the fourth-quarter Business (B2B) spending, which increased only 0.6% in real terms – after rising 2.9% in the preceding period.
While lower than the third-quarter growth rate of 3.0%, the 1.9% adjusted GO (GO*) increase in Q4 is still notably higher than the 1.2% average growth rate over the three periods ending in Q2 2024. Furthermore, after trailing GO in the first three quarters of 2024, the Adjusted GO grew at a higher rate in Q4. This generally indicates economic expansion ahead. It is important to note that half of the Q4 activity occurred before we knew the results of the presidential election in November. Therefore, some of the slowdown in business spending could have been triggered by concerns over the election outcome, and the direction of future economic policies depending on which party won control of the executive branch. However, even with the new – presumably pro-business administration – some concerns still linger. The main apprehension relates to the new administration’s intent to implement tariffs on importation of goods even from our closest economic ally’s, such as Canada, Mexico and the EU.
The current data for Q4 2025 sends mixed signals. The Adjusted GO growth rate has risen above the GO growth rate, which generally indicates steady expansion of the economy in the few upcoming quarters. Furthermore, the current fourth quarter growth is in line with the 2% fourth-quarter growth in 2023 and ahead of the 0.4% contraction in 2022.
Alternatively, both GO and GO* growth rates are slightly below the GDP growth rate, which could indicate a leveling off in the economy, and even a possible tightening. Businesses were cautious about spending over the past four periods. Additionally, real-term business spending (B2B) seems to decline in the last quarter of the year, which is not surprising in any given year because businesses frequently pull back on Q4 expenditures based on year-to-date results to meet their year-end budgets. As indicated above, this last-quarter spending pullback effect might be amplified by the uncertainty of an election year as we experienced in 2024. The GDP figures – which are dominated by consumer spending – show expansion almost always and overestimate the health of the economy. However, business spending is more sensitive to the ups and down of the economy, which makes it a better indicator of the direction that the economy might take in the near future.
The Federal Reserve did not anticipate a major economic downturn. Therefore, it has kept the interest at the 4.25%-4.50% range at their March 19, 2025 meeting. However, the Fed indicated the possibility of two quarter-percentage-point cuts in 2025 in case they notice any weakness in the economy for the rest of the year.
While the Trump administration made some small steps in discussions about a potential ceasefire with Volodymyr Zelenskyy and Vladimir Putin, a lasting peace agreement regarding the Ukraine war is not in sight yet. A permanent solution to this conflict would contribute significantly towards easing fears and incentivizing economic expansion in Europe and Asia. However, even the small steps achieved already are easing tensions and are instilling confidence that at least we should not see a major downturn of the U.S. economy.
Unlike consumption, which maintains a steady uptrend over the long term, business spending is significantly more volatile and more sensitive to economic fluctuations. Therefore, the slowly increasing business spending growth over the past several quarters, could indicate also that we might be safe from a recession, and on the way towards a steady economic expansion.
[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the fourth quarter of 2024 is slightly less than $51.5 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $62.4 trillion in Q4 2024. Thus, the BEA omits almost $11 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.
GO as a Leading Indicator
In our model, GO – which includes the value of the supply chain – is a leading indicator of where the economy is headed in the year. When GO grows faster than GDP, it suggests economic expansion over the next few quarters, and vice versa. Currently, the BEA’s real GO* growth rate of 1.9% is slightly lower than the annualized GDP growth rate of 2.4%. The static view might indicate that the economy is facing headwinds entering 2025. However, the fourth quarter metrics do not paint a clear picture.
After four quarters of mixed signals regarding the direction of the economy in the near term, the mixed economic data for the fourth quarter did not give any clearer indication regarding the long-term economic growth outlook. The first-quarter 2025 GO data is scheduled to be released in late June, which will hopefully give a clearer indication of the economic direction for the rest of 2025.
Just as close as in real terms, fourth-quarter 2024 nominal growth rates were even closer, with GDP expanding 4.8% to reach $29.7 trillion and GO rising 4.4% to exceed $51 trillion for the first time ever.
The Adjusted GO – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) – advanced 4.6% in nominal terms at the end of the fourth-quarter 2024 and has also reached a new milestone by rising above $61 trillion for the first time. The difference between net and gross figures amounts to nearly $11 trillion, which is missing from the government’s official GO figure, but we include it in our Adjusted GO measure.
Our GO model has proven reliably accurate in projecting the direction of GDP under normal economic circumstances.
The Importance of GO
Most economists are still unaware of the value of GO and use only GDP when gauging economic outlook. However, gross output (GO) should be viewed as the top line in national income accounting, and GDP is the bottom line. Both metrics are essential to understanding where the economy is headed.
As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”
As Steve Forbes has suggested, “GDP is the X-ray of the economy; GO is the CAT-scan.”
Business – Not Consumers – Drives the Economy
Another benefit of GO is that it dispels the myth that consumer spending drives the economy. Contrary to views of many academic economists and wide-spread media reports, consumer spending does not represent two-thirds of total economic activity. Using GO as a better and a more accurate measure of total spending in the economy, the business sector (B2B spending) is almost twice the size of consumer spending. Consumer spending is the effect, not the cause, of prosperity (Say’s law).
Therefore, our business-to-business (B2B) index is very useful for assessing the underlying health of the overall economy and its potential to bounce back after economic declines. The B2B Index measures all the business spending in the supply chain and new private capital investment. After expanding at an average rate of nearly 4% over the first three quarters in 2024, the nominal B2B growth slowed to just 2.9% in Q4 2024, which pushed the annualized B2B spending to a new high of more than $35 trillion. At the same time, consumer spending expanded 6.5% – approximately a whole percentage point higher than the average growth in the first three quarters of 2024 – and also reached a new high by cracking the $20 trillion mark. In real terms, business spending grew 0.6% on an annualized basis, and consumer spending expanded 0.9%
“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 first-quarter 2025 GDP on April 30, 2025. The full release of Q1 Gross Output data, as well as the third estimate of GDP are scheduled for June 26, 2025.
Important Note: We are hopeful that in the near future, the BEA will release GO at the same time as the first estimate of GDP for the quarter, not the third estimate. We also recommend that GO be elevated in the BEA’s press releases and website as the “top line” in national income accounting, since GO data often tells a very different story than GDP data.
Report on Various Sectors of the Economy
Despite a moderate expansion of the overall economy, one of the major economic sectors experienced a pullback again in Q4 2024 as it did in the past three periods. However, sectors in the very early stages of production expanded slightly, which could indicate an economic expansion down the line, as these sectors generally are better early indicators of economic direction than later stages of production.
After declining for five consecutive quarters in real terms, the Agriculture sector delivered a marginal expansion of 0.3%. Furthermore, the Mining sector reversed a 1.9% decline from Q3 and grew 0.8% in the last period of the year. The Utilities segment added to the positive result by reversing its own third quarter contraction of 2.6% into a 0.6% expansion in Q4 2024.
While these three sectors account for less than 4% of the overall economy, they are all early-stage sectors, which can signal how the later stages and the overall economy might shift over the subsequent few periods.
The Construction sector, which accounts for more than 4% of the economy expanded 3.7%. The major sector that contracted was the Manufacturing sector. The second-largest sector with a 14% share of the overall economy, reversed a small gain of 1.5% from Q3, and contracted 0.9% in the fourth quarter. Furthermore, while nondurable goods still expanded (1.4%), manufacturing of durable goods – which has a larger implication on indicating the long-term direction of the economy – contracted 3.1%.
While the Wholesale trade grew nearly 2% and the Retail expanded 6.4%, the Transportation and Warehousing sector advanced 6.1%, Additionally, when compared to the 7.9% growth in the third quarter, the Information sector increase was relatively flat with a 1% expansion.
After delivering a flat performance in the previous period, the largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – delivered another similar performance with a 0.3% growth. The main driver of this performance was a 3.2% contraction of the Finance and insurance subsegment.
Three late-stage sectors – Professional and business services; Educational services, health care, and social assistance; and Arts, entertainment, recreation, accommodation, and food services, which account combined for more than a fourth of the overall economy – expanded 1.8%, 3.2%, and 3.8% respectively.
Another drag on the economy is the expansion of government spending for the third consecutive period at similar growth rates. Overall government spending increases 3.1% in Q4 2024. In past periods we saw imbalanced growth where one level of government grew more than the other. However, in the most recent period at the end of 2024, the growth rates were nearly identical with Federal government expanding 3.2%, and State and local governments growing at a marginally lower rate of 3.0% from Q3 to Q4 2024.
Gross output (GO) and GDP are complementary statistics in national income accounting. GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement. In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.
Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is not quite the same as the “bottom line” (profit, or net income) of an accounting statement, but rather the “value added” or the value of final use.
GO tends to be more sensitive to the business cycle, and more volatile, than GDP.
About GO and B2B Index
Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy, bigger than GDP itself. GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”
Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015 and is now available on Amazon.
Click here: Structure of Production on Amazon
The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s.
The BEA now defines GDP in terms of GO. GDP is defined as “the value of the goods and services produced by the nation’s economy [GO] less the value of the goods and services used up in production (Intermediate Inputs or II].” See definitions at https://www.bea.gov/newsreleases/industry/gdpindustry/gdpindnewsrelease.htm
With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”
Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”
For More Information
This just in: My paper, “GO Beyond GDP,” which explains what GO is all about, has been ranked the #1 most downloaded paper by the Social Science Research Network (SSRN). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5002052
The GO data released by the BEA can be found at www.bea.gov under “Quarterly GDP by Industry.” Click on interactive tables “GDP by Industry” and go to “Gross Output by Industry.” Or go to this link directly: https://apps.bea.gov/iTable/?reqid=150&step=2&isuri=1&categories=gdpxind
Mark Skousen, “Slow GO May Mean a Recession Soon” Wall Street Journal, April 4, 2024: https://www.wsj.com/articles/slow-go-may-mean-a-recession-soon-us-economy-real-gross-output-65c4f1fd?mod=commentary_article_pos3
Peter Coy, “What GDP’s Cousin Can Tell Us about the Economy,” August 7, 2023, New York Times: https://www.nytimes.com/2023/08/07/opinion/gdp-recession-gross-output.html?searchResultPosition=1
Mark Skousen, “Recession Fears May Not Pass GO: GDP is Slumping, but There’s a Better Way to Gauge the Economy.” Wall Street Journal, August 11, 2022: Recession Fears May Not Pass GO – WSJ
If you are not a WSJ subscriber, you can read a copy of the article on: https://www.grossoutput.com/2022/09/12/recession-fears-may-not-pass-go/
Emma Rothschild, “Where is Capital?” in Capitalism: A Journal of History and Economics 2:2 (Summer 2021), pp. 291-371. https://muse.jhu.edu/article/798746 “Essentially an attempt to apply ideas about gross output to the economic history of the industrial revolution.”
GO-Day podcast discussion panel hosted Mark Skousen that included Steve Forbes, Sean Flynn, Steve Hanke, and David Ranson, September 30, 2020: https://chapman.zoom.us/rec/share/KJ17YjuR_6zthmgOA5fNprv2e65F-jICOsf430bJvnu8qWzdPYPfTohPC48qRLe9.Q8rmnlXynnTN74Tv?startTime=1601488807000
Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019; he compared GDP to an X-ray of the economy, and GO to a CAT-scan: : https://www.forbes.com/sites/steveforbes/2019/09/09/were-using-the-wrong-measure-gdp-to-gauge-the-economys-real-health-mark-skousen/#35ff3d9a52fa
For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:
Mark Skousen, “If GDP Lags, Watch the Economy Grow,” Wall Street Journal, April 24, 2018: https://www.grossoutput.com/2018/04/26/away-go-economy-growing-faster-expected/
Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM
Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”: http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/
Mark Skousen, Forbes Magazine (December 16, 2013): “Beyond GDP: Get Ready For A New Way To Measure The Economy”: http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/
Steve Hanke, Globe Asia (July 2014): “GO: J. M. Keynes Versus J.-B. Say,” http://www.cato.org/publications/commentary/go-jm-keynes-versus-j-b-say
David Ranson, “Output growth data that the economy generates months earlier than GDP,” Economy Watch, July 24, 2017. HCWE & Co. http://www.hcwe.com/guest/EW-0717.pdf
Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015: http://journal.apee.org/index.php?title=Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf
To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.
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