“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, January 22, 2026):
Today the federal government’s Bureau of Economic Analysis (BEA) released third quarter gross output (GO), the top-line that measures spending at all stages of production. Real Gross Output expanded 3.2%, which is generally a positive sign of future economic growth. However, real GO growth lagged slightly behind the real GDP expansion of 4.4%, which is an indicator of an economy struggling to expand at full speed. Economic data suggests that market fears of Trump’s trade war are waning slightly, but continue to restrain the economy from expanding at full speed.
However, while GO growth lagged behind GDP in Q3, both indicators performed significantly better than in the first two quarters of 2025. Furthermore, while contracting 0.6% in Q1 and growing only 0.3% in Q2 for a flat cumulative performance in the first half of the year. Adjusted real gross output (GO*) expanded 1.1% the third quarter. While all three metrics – GDP, GO and GO* – expanded in the third quarter, the fact that GO and GO* are growing slower than GDP raises concerns about economic growth, at least in the near term.
After slowing its growth to a mere 0.4% in Q1 2025 and expanding 2.6% in the second quarter, consumer spending continued its real-terms growth at 2.5% in the third quarter of 2025. The business sector – which tends to forecast economic outlook better than the consumer sector – contracted for a second consecutive period. However, the 1.8% contraction in the third quarter was significantly less than the 5.6% real-term contraction from the previous period. This second consecutive pullback is small enough and seems to be going in the right direction. If this trend continues, business spending should resume its steady expansion trend as it had for four consecutive periods before the brief contraction over the last two quarters.
One of the reasons for the B2B spending decline might be still 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. While businesses have worked through and exhausted some of those excess inventories, enough inventory remains to warrant a decline in business spending. Therefore, those advance purchases in Q1 still affected the business sector spending in Q3, which resulted in a lower GO growth.
Abraham Lincoln stated in his 1858 Illinois Republican Senate nomination speech, “A house divided against itself cannot stand.” Similarly, an economy with an imbalance of rising consumer spending and declining business spending cannot expand over the long term. However, just as Lincoln did not “expect the house to fall” in his speech, the economy must sort itself out to create conditions for a sustained long-term growth. To do that, either consumer spending has to dry up, or business spending must catch up. Hopefully the latter.
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 3% by the end of Q3 2025. While CPI data for October are not available because of the federal government shutdown and lapse in appropriations, the BLS reported the All-Items Consumer Price Index (CPI-U) at 2.7% for November and December 2025.
After cutting interest rates at its September 17 meeting, the Federal Reserve (Fed) has followed up with two additional short-term rate cuts in November and December, for a total rate cut of 50 basis points in the last quarter of 2025. While the lower interest rates helped the job market growth, the unemployment rate increased slightly to reach 4.4% by the end of 2025.
While President Trump seems to have gotten his wish of at least a few rate cuts, the Fed will most likely pause any rate cuts in early 2026, to see the full impact on the economy of the 175 basis points cumulative rate cut since late 2024. However, markets will certainly be cautious in anticipation who the new Fed Chairman will be, as Jerome Powell’s term as the Fed Chair is set to expire in May 2026.
The leading candidates for the Chair position include the National Economic Council Director Kevin Hassett, BlackRock, Inc.’s Chief Investment Officer Rick Rieder, Fed Governor Christopher Waller, and former member of the Federal Reserve Board of Governors Kevin Warsh. Regardless of which person gets the job, the new Fed Chair likely to be more inclined towards looser money policies than Jerome Powell, which could yield additional interest rate cuts in the second half of 2026, unless economic growth picks up speed by then.
[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 third quarter of 2025 is nearly $53.5 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to more than $63.8 trillion in Q3 2025. Thus, the BEA omits nearly $10.4 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 long-term uptrend, 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 have been just a result of advance spending in Q1. While business spending still contracted, the Q3 contraction was significantly smaller than the Q2 decline. This might indicate that business spending might be stabilizing.
We will need to wait until the BEA releases Q4 and full-year 2025 data to get clearer insight into B2B spending trends for early 2026. Due to the federal shutdown in October and November, the BEA’s data release schedule has been delayed, and the specific release date for Q4 data release has not been announced.
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 3.2% is significantly lower than the annualized Real GDP growth of 4.4%. The static view might indicate that the economy is facing headwinds entering 2026. However, some irregularities in business spending patterns might have skewed the Q2 and Q3 data. Hopefully, the fourth-quarter data will offer more clarity regarding the economic outlook leading deeper into 2026.
After sending mixed signals regarding the direction of the economy during 2024, the current economic data for the first three quarters of 2025 is equally ambiguous, and does not provide any more certainty regarding the economic growth outlook for the extended future. The fourth-quarter 2025 GO data, 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 terms. GDP expanded at the highest pace of 8.3% to exceed $31 trillion for the first time ever. GO trailed GDP growth only slightly, and expanded 7.0% to reach $53.5 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 1.1% in nominal terms the third-quarter of 2025 and currently stands at $63.8 trillion. The difference between net and gross figures amounts to more than $10.4 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 contracting 3.6% in Q2 2025, nominal B2B spending reversed direction and expanded 1.9% to $35.2 trillion in Q3 2025. In contrast, nominal consumer spending followed as 3.7% expansion from a previous period with a 6.3% surge in Q3 to reach $21.1 trillion. The disparity is even bigger in real terms, where consumer spending rose 2.5%, but B2B contracted 1.8%.
“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 February 20, 2026. Because of the federal government shutdown last fall, the date for the full release of Q4 Gross Output data not been set yet. However, the current BEA data release schedule seems to be running about a month behind normal. Therefore, we should see the Q4 GO data, as well as the third estimate of GDP, release no later than mid-to-late April 2026.
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 eight quarters, the Agriculture sector surged 5.7% in the third-quarter 2025. The Mining segment reversed a brief contraction from a previous period with a 4.2% expansion in Q3. After surging 11.6% in Q1 2025 and a 7% decline in Q2 2025, the Utilities segment remained flat in Q3 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, declined nearly 6% in Q3. This continued the downtrend after contracting slightly at 0.6% in the first quarter of 2025, and shrinking 2.4% in Q2 2025 in real terms. Manufacturing, the second largest sector with more than 14% share of the overall economy, expanded 1% in Q3 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 2.1%, the durable goods sub-segment delivered a 4.1% growth, which is an even wider gap than it was in the previous period, and a better positive indicator for long term growth. The Wholesale trade reversed its 10.7% decline in the second-quarter and expanded 7.8% in Q3 2025. After contracting for two consecutive periods, the Retail trade expanded 5% in the third quarter. The Transportation and Warehousing reversed a contraction from Q1 and a small expansion in Q2, with an 8% expansion in Q3 2025.
After two periods of double-digit growth, the Information segment tempered its expansion to just 2.8% in the most recent period. The largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – delivered a 2.1% expansion in real terms, which was in line with the 2.5%, and 2.8% growth from the first two periods of 2025.
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 6.6% and 6.3%, respectively. These growth rates are approximately 50% higher than in the previous period. After contracting 4.3% in Q1 and surging 7.7% in Q2, the Arts, entertainment, recreation, accommodation, and food services sector expanded at more moderate rate of 1.5% in Q3.
After contracting for two consecutive quarters to start 2025, total government spending increased 2.1% in Q3 2025. The growth was divided evenly between a 2.1% growth of federal government spending, and 2.0% expansion of State and local spending.
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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