Business is Back – Big Time!

“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)

I just made the Wall Street Journal with big news: gross output (GO), my macro statistic that the federal government that is now measured every quarter along with GDP, showed remarkable growth in the 2nd quarter, GO up 5% vs. 2.2% for GDP. GO measures total spending in the economy, including the supply chain (GDP ignores the supply chain).

Business (B2B) spending in the 2nd quarter exploded upward by 13.8% (annualized) – its best record in years.

This is a watershed event for GO, because it demonstrates how GO can often differ dramatically from GDP, like today’s announcement.

Read the WSJ story here: https://www.wsj.com/opinion/gross-output-signals-an-economic-surge-ee8e462e

Here is the full press release, with additional details and references:

Washington, DC (Wednesday, September 30, 2026):

Today the federal government’s Bureau of Economic Analysis (BEA) released second quarter gross output (GO), the top-line that measures spending at all stages of production. After a few quarters of mixed signals, today’s results signal strong economic growth in the second quarter, which should extend into the upcoming few quarters as well. Real Gross Output expanded 5%, which is a significant increase over the previous quarter’s 1.7% growth rate, and it indicates a very optimistic outlook on economic growth in the second half of 2026. In addition to the strong growth versus its own performance from the prior period, it also outpaced the 2.2% real GDP expansion in the second quarter of 2026. The GO growth exceeding GDP growth generally indicates strong economic performance over the next few quarters.

Furthermore, the adjusted Gross Output (GO*)^[1] expansion of 6.5% outpaced both GO growth and GDP growth, which further supports the strong expectation of economic expansion in the subsequent few periods. Unlike the mixed signals about forecasting the direction of the economy over the past couple of quarters, the current message is clear and significantly more optimistic in Q2 2026. Additionally, real GDP growth for Q1 was revised from 2.1% in the previous estimate to 2.5%, and real GO was revised upward 0.6 percentage points to 2.3%, which makes the current Q2 results even more significant.

The GO* surge was driven by a significant expansion in Business-to Business (B2B) spending in the second quarter, which increased 13.8% in inflation-adjusted terms and 19.5% in nominal terms. If we exclude the post-Covid recovery – Q3 2020 through Q1 2021 – the current B2B expansion rates are the highest since we started tracking them in Q1 2005.

This level of growth indicates that the business sector is very confident in the economic expansion over the near term despite the still-uncertain outcomes of the U.S. military engagements in the Middle East and the upcoming mid-term U.S. elections.
While consumer spending increased in Q2 as well, it did not grow nearly as much as B2B spending. After posting a lethargic expansion of just 0.5% in the previous quarter, second-quarter inflation-adjusted consumer spending grew 3.8%, and expanded 6.8% in nominal terms.

The Federal Reserve (Fed) acted to steady inflationary pressure and has raised the target range for the federal funds rate 25 basis points at the September meeting, which was the first rate increase since July 2023. The next Fed meeting is scheduled to begin on October 27. With the unemployment rate holding steady at 4.1% as of August, a slight uptick in the labor participation rate from the five-year low to 61.6%, as well as the strong economic growth rate inn Q2, the general consensus and market signals indicate a likelihood that the Fed will make no changes to the current target range of 3.75%-4.00%. There were some indications about a possibility of a 25-basis-point rate increase at the Fed’s December meeting, which now might be even more likely in the aftermath of the upward revision of the Q1 results, and the strong Q2 growth reported this morning.

[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 2026 is nearly $56.2 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to almost $67.9 trillion in Q2 2026. Thus, the BEA omits $11.7 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 generally maintains a steady long-term uptrend, business spending is significantly more volatile and more sensitive to economic fluctuations, which makes it a better indicator of the direction of the economy in the short term. Therefore, the strong, double-digit business spending expansion in Q2 – as well as the 4% growth in Q1 – indicate a strong likelihood of robust economic growth in the second half of 2026. Business spending trends might have been slightly skewed in early 2025 by advance spending in anticipation of higher tariffs, however, those distortions should have largely dissipated by now and the business spending growth should be an accurate indication of economic growth.

Another strong performance in Q3 2026 should confirm the economic growth potential going into early 2027. However, the impact of higher prices – especially energy prices that are still because of the continued conflict in Iran – might affect negatively some of the planned business spending, and reduce growth. The federal shutdown in October and November 2025 had delayed some of the BEA’s data release schedule in late 2025 and early 2026. However, the BEA has worked through the backlog, and their data releases are back to their usual schedule, with the third quarter of 2026 data release set for late December.

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, and GO* grows faster than GO it suggests economic expansion over the next few quarters, and vice versa. Therefore, based on Q2 results, the static view indicates that the economy has overcome the headwinds it faced entering 2026, and seems to be headed for smooth sailing and calmer waters, barring any unforeseen events.

Unlike the disconnect in real and nominal terms over the previous few quarters, all three metrics exhibited the standard growth patterns in Q2 2026. GDP expanded at the lowest pace of 2.2% and exceeded $32.5 trillion in Q2 2026. Nominal GO expanded at 12.4% to exceed $56 trillion for the first time.
Furthermore, 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 14% in nominal terms and is currently just short of $67.9 trillion. The difference between net and gross figures amounts to more than $11.7 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, “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 a brisk 4% in Q1 2026, nominal B2B spending surged 19.5% in Q2 2026 to exceed $38 trillion for the first time. Nominal consumer spending also expanded significantly faster than the 0.7% growth recorded in the previous period. However, the consumer spending expanded to just short of $22 trillion, and the growth rate of 6.8% in nominal terms was less than half the growth rate in B2B spending. The disparity is even bigger in real terms, where consumer spending expanded 3.8%, but B2B surged nearly 14%.

“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 2026 GDP on October 29, 2026. Furthermore, the third estimate of GDP and the Gross output data for the third quarter of 2026 are scheduled to be released on December 23, 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

After delivering strong growth in late 2025 and early 2026, the Agriculture segment contracted 1.6% in Q2 2026. However, the Mining segment surged 14.2%, while the Utilities segment grew 2% in Q2. 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 4% of the overall economy, declined 3%. Manufacturing, the second largest sector with more than 14% share of the overall economy, delivered a 4.3% expansion in Q2 2026. Even more promising is the overall structure of the expansion. While the nondurable goods sub-segment remained flat to previous period, the durable goods sub-segment expanded nearly 9%, which is an indicator of businesses – as well as consumers – buying more for the long term than the short term. The Wholesale and Retail segments confirm this notion as well. While the Retail sub-sector expanded 6.5% the Wholesale sub-sector surged more than 20%. The Transportation and Warehousing sub-segment also delivered strong growth at 3.6%.

The Information segment delivered another quarter of reliable growth at 8.5%. The largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – expanded 3.6%.

The Professional and business services sector expanded 3.1% in real terms. Additionally, the Educational services, health care, and social assistance – which accounts for nearly 9% of the overall economy – delivered a solid performance by expanding 5.3%. Within this segment, educational services contracted 0.6%, and the main driver of this segment’s growth was the health care and social services sub-segment, which expanded 6%. The Arts, entertainment, recreation, accommodation, and food services sector expanded nearly 8% driven by the 17.8% surge in the arts, entertainment, and recreation sub-segment.

While still expanding, total government spending grew only half as much as spending in the private sector. An overall expansion of total government spending was driven primarily by the 5.1% growth at the federal level. However, spending growth of only 1.6% at the state and local levels – which account for nearly 70% of total government spending in Q2 2026 – managed to hold the overall government spending growth to just 2.6%.

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, businesses 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

Best summary:  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.

# # #