“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, June 26, 2025):
Today the federal government’s Bureau of Economic Analysis (BEA) released 1st quarter gross output (GO), the top-line that measures spending at all stages of production. Real Gross Output expanded 0.6%. GO expansion is generally a positive sign of future economic growth. However, real GDP contracted 0.5%, which indicates that consumers are concerned about the U.S. economy’s ability to expand in the near-term. Furthermore, consumer reluctance drove real consumer spending in Q1 2025 to be lower than the previous period, which resulted in the Adjusted real gross output (GO*) contracting 0.6%. While delivering a positive result in nominal terms, the real-term GDP and GO* decline casts some doubts regarding which direction the economy will take as we head into the second half of the year. Despite these real-term declines of GDP and GO*, GO growth leading GDP growth generally indicates a positive economic outlook. Furthermore, while consumers are concerned, the business sector – which tends to forecast economic outlook better than the consumer sector – sees something positive in the current economy to warrant a significant expansion of Business-to-Business (B2B) spending in the first quarter of the year. However, the B2B spending increase most likely is the result of retailers and suppliers advance purchasing of excess inventories in anticipation of rising prices because of the new tariffs imposed by the Trump administration.
The main business concern coming onto 2025 was the uncertainty about the impact that the new Trump administration’s policies might have on the overall economy. While rising import tariffs generally increase consumer prices in the long run, both headline and core inflation have continued to decline after the new administration took office in January 2025, but exhibited a small increase in May. Since it takes a little time for structural changes to occur in the economy to adjust to the new reality of higher tariffs, we must be on the lookout to see whether this inflation uptick in May was a temporary blip, or a beginning of a reversal that will see prices continue to increase as a consequence of the new import tariff policies.
President Trump has been lobbying for an immediate interest rate cut to mitigate potentially some of the negative economic impact of the increased tariffs. However, the Federal Reserve (Fed) decided to keep the interest rates unchanged at its most recent meeting on June 17 and June 18. Responding to criticism by some Congress Republicans, Fed Chair Jerome Powell indicated that the Fed – as well as most economists and financial experts – still expect that the higher tariffs will push inflation higher in the near term. Therefore, the Fed is taking a wait-and-see approach.
Testifying before the House Financial Services Committee, Powell stated, “For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.” Therefore, the Fed decided to maintain the current interest at the 4.25%-4.50%, but is still open to the possibility of two quarter-percentage-point cuts in 2025, if rising tariffs and prices drive the economy to reverse direction and take a downturn in late 2025.
While we see no near-term resolution to the Ukraine war, the new and potentially bigger concern now is the impact of the Trump Administration’s recent bombing of Iran’s nuclear facilities, as well as any potential retaliation by the Iranian government – as well as independent extremists’ organizations. However, even if there is no direct retaliation, we will not see the effects of these economic concerns in GDP and GO data until the BEA releases that data much later in the year.
Unlike consumption, which maintains a steady uptrend over the long term, business spending is significantly more volatile and more sensitive to economic fluctuations. Therefore, the slowly increasing business spending growth over the past several quarters, could indicate also that we might be safe from a recession, and on the way towards a steady economic expansion.
[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the first quarter of 2025 is slightly more than $52 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $62.8 trillion in Q1 2025. Thus, the BEA omits almost $11 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.
GO as a Leading Indicator
In our model, GO – which includes the value of the supply chain – is a leading indicator of where the economy is headed in the year. When GO grows faster than GDP, it suggests economic expansion over the next few quarters, and vice versa. Currently, the BEA’s real GO* growth rate of 0.6 % is higher than the annualized Real GDP contraction of 0.5%. The static view might indicate that the economy is facing headwinds entering 2025. However, the fourth quarter metrics do not paint a clear picture.
After sending mixed signals regarding the direction of the economy since the beginning of 2024, the current economic data for the Q1 2025 is equally ambiguous, and does not provide any more certainty regarding the economic growth outlook for the extended future. The second-quarter 2025 GO data is scheduled to be released in late September, which will hopefully give a clearer indication of the economic direction for the rest of 2025.
Unlike real terms that showed a decline for two of the three metrics. All three metrics expanded in nominal rems. GDP expanded at the slowest pace of 3.2% to reach $29.96 trillion. GO made the largest progress and rose 4.7% to exceed $52 trillion for the first time ever.
The Adjusted GO – which includes the gross wholesale and gross retail figures (included only as net figures in the GO reported by the BEA) – advanced 3.4% in nominal terms at the end of the first-quarter 2025 and currently exceeds $62 trillion. The difference between net and gross figures amounts to nearly $11 trillion, which is missing from the government’s official GO figure, but we include it in our Adjusted GO measure.
Our GO model has proven reliably accurate in projecting the direction of GDP under normal economic circumstances.
The Importance of GO
Most economists are still unaware of the value of GO and use only GDP when gauging economic outlook. However, gross output (GO) should be viewed as the top line in national income accounting, and GDP is the bottom line. Both metrics are essential to understanding where the economy is headed.
As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”
As Steve Forbes has suggested, “GDP is the X-ray of the economy; GO is the CAT-scan.”
Business – Not Consumers – Drives the Economy
Another benefit of GO is that it dispels the myth that consumer spending drives the economy. Contrary to views of many academic economists and wide-spread media reports, consumer spending does not represent two-thirds of total economic activity. Using GO as a better and a more accurate measure of total spending in the economy, the business sector (B2B spending) is almost twice the size of consumer spending. Consumer spending is the effect, not the cause, of prosperity (Say’s law).
Therefore, our business-to-business (B2B) index is very useful for assessing the underlying health of the overall economy and its potential to bounce back after economic declines. The B2B Index measures all the business spending in the supply chain and new private capital investment. After expanding at an average rate of approximately 4% in 2024, nominal B2B spending accelerated growth and expanded 6.7% in Q1 2025, which pushed the annualized B2B spending to more than $35 trillion. In contrast, after expanding in excess of 5.3% for 2024, nominal consumer spending expanded just 1% in the first quarter of 2025. The disparity is even more visible in real terms, where consumer spending experienced no growth whatsoever, but B2B expanded 1.6% – the highest real B2B expansion since Q2 2022.
“B2B spending is in fact a pretty good indicator of where the economy is headed, since it is more responsive to the boom-bust economic cycle than consumer spending,” states Mark Skousen, editor of Forecasts & Strategies and the Doti-Spogli Chair of Free Enterprise at Chapman University.
While GDP includes only a small portion of investment spending, GO accounts for significantly more of the business investment outlays, which tend to indicate economic direction over extended periods. As David Ranson, chief economist for the private forecasting firm HCWE & Co., states, “Movements in gross output serve as a leading indicator of movements in GDP.”
The federal government will release the advance estimate for second-quarter 2025 GDP on July 30, 2025. The full release of Q2 Gross Output data, as well as the third estimate of GDP are scheduled for September 25, 2025.
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Important Note: We are hopeful that in the near future, the BEA will release GO at the same time as the first estimate of GDP for the quarter, not the third estimate. We also recommend that GO be elevated in the BEA’s press releases and website as the “top line” in national income accounting, since GO data often tells a very different story than GDP data.
Report on Various Sectors of the Economy
Just like the overall economy delivered mixed signals, the various segments of the economy followed suit. After breaking a trend of declining for five consecutive quarters in real terms, the Agriculture sector followed up last period’s marginal expansion of 0.3% with a major reversal and contracted 12.2% in the first quarter of 2025. The Mining segment delivered a second consecutive expansion, and rose 1.1% following a 0.8% growth in the previous quarter. The Utilities segment built on a small 0.6% expansion from Q4 2024, and surged 11.6% in Q1 2025.
These three sectors account for less than 4% of the overall economy. However, since they occupy the earliest stages of production, they tend to be the foretellers of how the later stages, as well as the overall economy might fare in the following few periods.
The Construction sector, which accounts for more than 4% of the economy and expanded 3.7% in the last quarter of 2024, contracted slightly at 0.6% in the first quarter of 2025. The second largest sector – accounting for 14% of the overall economy – reversed its small contraction from the previous quarter and expanded 0.3% in Q1 2025. However, while the overall segment expanded only slightly, the structure of the expansion might indicate a potential for a positive near-term outlook. While the nondurable goods segment contracted 0.7%, the durable goods sub-segment delivered a 1.2% growth. The Wholesale trade followed a 2% growth from the previous period with another, albeit smaller expansion of 0.5%. While higher growth of the durable goods sub-segment and the wholesale trade generally indicates a positive outlook near-term economic growth, we must keep in mind that this might be merely a result of the advance inventory purchases in anticipation of tariff-driven price increases.
Upcoming data releases might shed some light on whether advanced purchasing of excess inventories might have driven the Wholesale trade to expand. However, the Retail trade reversed its expansion of 6.4% from Q4 2024, and declined 3.5% in Q1 2025. The Transportation and Warehousing contracted similarly at 3.7% for the period.
After growing only 1% in Q4 2024 following a 7.9% expansion in Q3, the Information sector surged 11.6% to kick of 2025. The largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – delivered a sizeable expansion of 2.5% in Q1 2025, after growing only 0.3% in the last quarter of 2024.
The Professional and business services sector; and the Educational services, health care, and social assistance – which account combined for more than 21% of the overall economy – expanded 0.2%, 2.8%, respectively. However, after delivering a positive result in the previous period, the Arts, entertainment, recreation, accommodation, and food services sector took a dive and contracted 4.3%.
After expanding for three consecutive periods, total government spending contracted in the first period of 2025. State and local governments, which account for two-thirds of total government spending still expanded 2.3%. However, despite being only one-third of the overall government spending, federal government spending declined significantly enough – 7.2% – to make the total government spending shrink 0.6%
Gross output (GO) and GDP are complementary statistics in national income accounting. GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement. In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.
Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is not quite the same as the “bottom line” (profit, or net income) of an accounting statement, but rather the “value added” or the value of final use.
GO tends to be more sensitive to the business cycle, and more volatile, than GDP.
About GO and B2B Index
Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy, bigger than GDP itself. GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”
Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015 and is now available on Amazon.
Click here: Structure of Production on Amazon
The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s.
The BEA now defines GDP in terms of GO. GDP is defined as “the value of the goods and services produced by the nation’s economy [GO] less the value of the goods and services used up in production (Intermediate Inputs or II].” See definitions at https://www.bea.gov/newsreleases/industry/gdpindustry/gdpindnewsrelease.htm
With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”
Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”
For More Information
This just in: My paper, “GO Beyond GDP,” which explains what GO is all about, has been ranked the #1 most downloaded paper by the Social Science Research Network (SSRN). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5002052
The GO data released by the BEA can be found at www.bea.gov under “Quarterly GDP by Industry.” Click on interactive tables “GDP by Industry” and go to “Gross Output by Industry.” Or go to this link directly: https://apps.bea.gov/iTable/?reqid=150&step=2&isuri=1&categories=gdpxind
Mark Skousen, “Slow GO May Mean a Recession Soon” Wall Street Journal, April 4, 2024: https://www.wsj.com/articles/slow-go-may-mean-a-recession-soon-us-economy-real-gross-output-65c4f1fd?mod=commentary_article_pos3
Peter Coy, “What GDP’s Cousin Can Tell Us about the Economy,” August 7, 2023, New York Times: https://www.nytimes.com/2023/08/07/opinion/gdp-recession-gross-output.html?searchResultPosition=1
Mark Skousen, “Recession Fears May Not Pass GO: GDP is Slumping, but There’s a Better Way to Gauge the Economy.” Wall Street Journal, August 11, 2022: Recession Fears May Not Pass GO – WSJ
If you are not a WSJ subscriber, you can read a copy of the article on: https://www.grossoutput.com/2022/09/12/recession-fears-may-not-pass-go/
Emma Rothschild, “Where is Capital?” in Capitalism: A Journal of History and Economics 2:2 (Summer 2021), pp. 291-371. https://muse.jhu.edu/article/798746 “Essentially an attempt to apply ideas about gross output to the economic history of the industrial revolution.”
GO-Day podcast discussion panel hosted Mark Skousen that included Steve Forbes, Sean Flynn, Steve Hanke, and David Ranson, September 30, 2020: https://chapman.zoom.us/rec/share/KJ17YjuR_6zthmgOA5fNprv2e65F-jICOsf430bJvnu8qWzdPYPfTohPC48qRLe9.Q8rmnlXynnTN74Tv?startTime=1601488807000
Steve Forbes: What’s Ahead podcast. In this podcast, Steve Forbes discusses Gross Output with Mark Skousen on September 9, 2019; he compared GDP to an X-ray of the economy, and GO to a CAT-scan: : https://www.forbes.com/sites/steveforbes/2019/09/09/were-using-the-wrong-measure-gdp-to-gauge-the-economys-real-health-mark-skousen/#35ff3d9a52fa
For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:
Mark Skousen, “If GDP Lags, Watch the Economy Grow,” Wall Street Journal, April 24, 2018: https://www.grossoutput.com/2018/04/26/away-go-economy-growing-faster-expected/
Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM
Steve Forbes, Forbes Magazine (April 14, 2014): “New, Revolutionary Way To Measure The Economy Is Coming — Believe Me, This Is A Big Deal”: http://www.forbes.com/sites/steveforbes/2014/03/26/this-may-save-the-economoy-from-keynesians-and-spend-happy-pols/
Mark Skousen, Forbes Magazine (December 16, 2013): “Beyond GDP: Get Ready For A New Way To Measure The Economy”: http://www.forbes.com/sites/realspin/2013/11/29/beyond-gdp-get-ready-for-a-new-way-to-measure-the-economy/
Steve Hanke, Globe Asia (July 2014): “GO: J. M. Keynes Versus J.-B. Say,” http://www.cato.org/publications/commentary/go-jm-keynes-versus-j-b-say
David Ranson, “Output growth data that the economy generates months earlier than GDP,” Economy Watch, July 24, 2017. HCWE & Co. http://www.hcwe.com/guest/EW-0717.pdf
Mark Skousen, “Linking Austrian Economics to Keynesian Economics,” Journal of Private Enterprise, Winter, 2015: http://journal.apee.org/index.php?title=Parte7_Journal_of_Private_Enterprise_vol_30_no_4.pdf
To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.
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