“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, September 25, 2025):
Today the federal government’s Bureau of Economic Analysis (BEA) released 2nd quarter gross output (GO), the top-line that measures spending at all stages of production. Real Gross Output expanded 1.2%, which is generally a positive sign of future economic growth. However, real GO growth lagged significantly behind the real GDP expansion of 3.8%, which is an indicator of an economy struggling to expand at full speed. Economic data seems to be indicating that Trump’s trade war is finally having deliriously negative effects on business.
However, while GO growth lagged behind GDP in Q2, both indicators performed significantly better in Q2 than in the previous period when real GDP contracted and real GO expanded only 0.6% – only half the rate of current growth. The Adjusted real gross output (GO*) is the worst performer with a real-term growth of only 0.3% in the second quarter. However, that is still a positive outcome compared to the 0.6% contraction in the first quarter 2025.
After faltering a bit in the previous period, consumers spending returned to a steady growth trend and expanded in the second quarter 3.8% in real terms. However, the concern is the 5.6% real-term contraction of the business sector – which tends to forecast economic outlook better than the consumer sector. This is the first pullback in business spending after four consecutive periods of steady growth.
One of the reasons for the B2B spending decline could be the effects of retailers and suppliers purchasing of excess inventories during Q1 in anticipation that tariffs imposed by the Trump administration might result in price increases. Therefore, after those purchases in advance, the business sector tapered its spending in Q2, which resulted in a lower GO growth.
Higher import tariffs generally increase consumer prices in the long run. Both headline and core inflation have declined in the first four months after the new administration took office in January 2025. However, since bottoming out at 2.3% in April 2025, monthly All-Items Consumer Price Index (CPI-U) published by the U.S. Bureau of Labor Statistics (BLS) has increased to 2.9%.
President Trump has been lobbying strongly for an immediate interest rate cut potentially to mitigate some of the negative economic impact of the increased tariffs. At its September 17, the Federal Reserve (Fed) cut the its short-term rates because, “uncertainty about the economic outlook remains elevated,” as well as because, “downside risks to employment have risen.” While President Trump seems to have gotten his wish, the Fed cut the rates only a quarter of a point, instead of a half a point that the current administration preferred. However, while still taking a wait-and-see approach, the Fed has signaled that it might cut the rates two more time before 2025 is over.
[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 second quarter of 2025 is nearly $52.6 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to more than $63.3 trillion in Q2 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.
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 sudden contraction of business spending could indicate a higher probability of a recession in the second half of 2025 or early 2026. However, as indicated earlier, the B2B spending decline in Q2 might be just a result of advance spending in Q1.
We will have to wait until the BEA releases Q3 GO data in late December be certain whether the Q2 B2B spending contraction is just a temporary blip or a beginning of a longer trend, as well as to have a better indication of the economy’s potential trajectory over the next few periods.
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 1.2% is significantly lower than the annualized Real GDP growth of 3.8%. The static view might indicate that the economy is facing headwinds in the second half of 2025. However, some irregularities in business spending patterns might have skewed the Q2 data. Hopefully, the third quarter data in December will offer more clarity regarding the economic outlook at the end of 2025 and leading into 2026.
After sending mixed signals regarding the direction of the economy during 2024, the current economic data for the first two quarters of 2025 is equally ambiguous, and does not provide any more certainty regarding the economic growth outlook for the extended future. The third-quarter 2025 GO data, which is scheduled for release in late December, will hopefully give a clearer indication of the economic direction.
Unlike real terms that showed lethargic growth for GO and especially GO*, all three metrics expanded relatively well in nominal rems. GDP expanded at the highest pace of 3.8% to exceed $30 trillion for the first time ever. GO made modest progress and rose 3.2% to $52.6 trillion.
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 just 2.3% in nominal terms the second-quarter 2025 and currently stands at $62.2 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 more accurate than GDP in projecting the direction of the economy under normal circumstances. Economist and professor of applied economics at the Johns Hopkins University, Steve Hanke, stated that as, “Trump’s trade wars throw another monkey wrench into the GDP metric,” and that, “for a reliable metric to take the economy’s temperature,” we should, “go with gross output.” Hanke also states that right now, “GO is flashing red.”
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 and surging 6.7% in Q1 2025, nominal B2B spending pulled back 3.6% from $35.5 trillion in Q1 to $35.2 trillion in Q2 2025. In contrast, after being relatively flat in Q1, nominal consumer spending expanded 3.7% to $20.5 trillion. The disparity is similar in real terms, where consumer spending rose 2.6%, but B2B contracted 5.6%.
“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 third-quarter 2025 GDP on October 30, 2025. The full release of Q3 Gross Output data, as well as the third estimate of GDP are scheduled for December 19, 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
Just like the overall economy continues to deliver mixed signals, the various segments of the economy are equally volatile. After contracting six out of the past seven quarters, the Agriculture sector remained flat in the second-quarter 2025. The Mining segment followed expansions of approximately 1% in the previous two periods with a 0.6% contraction in the current period. After staying relatively flat in the last quarter of 2024 and surging 11.6% in Q1 2025, the Utilities segment declined nearly 7% in the second-quarter 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 contracted slightly at 0.6% in the first quarter of 2025, widened the contraction in Q2 2025 and declined 2.4% in real terms. The second largest sector – accounting for 14% of the overall economy – built on a 0.3% contraction from the previous quarter with a 1.9% expansion Q2 2025. 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 expanded 1%, the durable goods sub-segment delivered a 2.7% growth, which is a better positive indicator for long term growth. The Wholesale trade followed two growth periods with a 10.7% decline in the second-quarter 2025. While higher growth of the durable goods sub-segment and the wholesale trade generally indicate a positive outlook near-term economic growth, it appears that the high growth in Q1 was at least partially the result of business purchasing inventories and goods in advance to hedge for the anticipation of tariff-driven price increases.
Therefore, the sharp decline in the Wholesale trade in Q2 resulted partially from some of the spending occurring in Q1 After declining 3.5% in Q1 2025, the Retail trade contracted even further and fell 7.1% in the second-quarter 2025. The Transportation and Warehousing reversed a 3.7% contraction from the previous period and expanded 2.1% for the most recent period.
The Information backed an 11.6% surge in Q1 with a nearly equal expansion of 10.1% in Q2 2025. The largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – delivered a 22.8% expansion in real terms, which was in line with the 2.5% growth from the first quarter.
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 4.7% and 4.6%, respectively. After contracting 4.3% in Q1, the Arts, entertainment, recreation, accommodation, and food services sector reversed direction and surged 7.7% in the most recent period.
After three consecutive periods of expansion to end 2024, total government spending followed a 0.6% contraction with another overall decline in the second-quarter 2025. Federal government spending decline of 6% drove the overall reduction in government spending. However, despite the strong spending reduction on the federal level and because State and local spending accounts for two-thirds of total government spending, the state and local spending increase of 1.6% reduced the total government spending contraction to 0.7% in Q2 2025.
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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