– 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, April 9, 2026):

Today the federal government’s Bureau of Economic Analysis (BEA) released fourth quarter gross output (GO), the top-line that measures spending at all stages of production. Real Gross Output contracted 0.5%, which signals significant concerns about future economic growth. While real GDP expansion delivered a lethargic 0.5% growth, it remained positive, unlike GO. Both of these metrics indicate that the U.S. economy continues to face very strong headwinds against steady expansion. Economic data continues to signal that markets are fearful of President Trump’s continued trade war and the unrest in the Middle East.

Furthermore, after contracting 0.6% in Q1, growing merely 0.3% in Q2, and expanding just 1.1% in Q3, adjusted real Gross Output (GO*) contracted again 0.6% in Q4, as it did in Q1. Both GO and GO* increased slightly in Q3 but their growth lagged behind GDP, which indicated a struggle in the economy to advance at a faster pace. However, GO and GO* declining in Q4 sends a more concerning message – that despite marginal GDP growth, the economy is struggling to expand at all, and it is in real danger of contracting if the current geopolitical and economic environment persists.
After growing steadily around 2.5% in real terms during each of the two previous quarters, real consumer spending growth cooled off to 1.6% in the fourth quarter of 2025. However, the business sector – which tends to forecast economic outlook better than the consumer sector – contracted 2% in real terms on an annualized basis.
In the first half of 2025, the B2B spending decline might have been the result of retailers and suppliers purchasing of excess inventories during Q1 in anticipation that tariffs imposed by the Trump administration might result in price increases. However, that effect should have evaporated by the end of 2025. Therefore, the business decline at the end of the year carries a more significant concern about near-term business spending, which is the real driver of economic expansion.

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) holding steady at 2.7% for November and December 2025. January data shows CPI-U edging down further to 2.4%, which is at least one positive indicator.

The Federal Reserve (Fed) cut interest rates three times in the second half of 2025 for a total reduction of 75 basis points, which helped the job market expand slightly. After a recent peak of 4.6% in November 2025, the unemployment rate fell to 4.4 in December, and has remained in the 4.3%–4.4% range since then.

After three consecutive rate cuts, the Fed paused in early 2026 to evaluate the full impact on the economy of these recent cuts, as well as cumulative rate cuts of 175 basis points since late 2024. Advance GDP estimates for Q1 2026 indicated a relatively steady economic growth, which supported Fed’s decision to pause rate cuts in early 2026. However, with real GDP growth for Q4 2025 revised down from the advance estimate of 1.4% to just 0.5%, the Trump administration might lobby the Fed for additional cuts in 2026, especially if President Trump’s nominee – former member of the Federal Reserve Board of Governors Kevin Warsh – is confirmed and takes over from Jerome Powell as the Fed Chair in May.

[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 2025 is more than $53.8 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $65 trillion in Q4 2025. Thus, the BEA omits nearly $11.2 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 as we get deeper into 2026. While business spending contraction in early 2025 might have been just a result of advance spending in Q1 in anticipation of higher tariffs, the continued decline in the second half of the year is signaling potentially deeper structural causes of business spending contraction, that are less likely to be explained by inventory purchasing shifts.

We will need to wait until the BEA releases Q1 2026 data to get an indication whether B2B spending will reverse the trend and expand in early 2026. However, higher prices – especially energy prices that spiked due to the conflict in Iran – might dampen any business spending expansion that might otherwise have happened. The BEA’s data release schedule has been delayed due to the federal shutdown in October and November, and we have had to wait longer for quarterly data to become available. However, it seems that the BEA has worked through the backlog, and the Gross Output data release for first quarter of 2026 has been scheduled for its usual date in the last week of June.

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. The BEA’s real GO contraction of 0.5% is trailing the real GDP expansion of 0.5%. The static view indicates clearly that the economy is facing headwinds entering 2026. While some irregularities in business spending patterns might have skewed the Q2 and Q3 data, the continued weakness in the last quarter of 2025 does not offer any clarity and raises concerns of weak economic outlook heading into 2026.

Unlike real terms that showed lethargic growth for GO and GO*, all three metrics expanded in nominal terms. GDP expanded at the highest pace of 4.2% and exceeded $31.4 trillion in Q4 2025. Nominal GO expanded at a slower pace than GDP and grew only 2.8% to reach $53.8 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 2.7% in nominal terms and is currently just short of $65 trillion. The difference between net and gross figures amounts to more than $11.1 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 4.7% in Q3 2025, nominal B2B spending slowed growth to expand just 1.6% to $36.1 trillion in Q4 2025. In contrast, nominal consumer spending – which expanded 6.3% in the previous period – rose another 4.9% in Q4 to reach $21.4 trillion. The disparity is even bigger in real terms, where consumer spending rose 1.6%, but B2B contracted 2%. 

“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 2026 GDP on April 30, 2026. Furthermore, the third estimate of GDP and the Gross output data for the first quarter of 2026 are scheduled to be released on June 25, 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 struggled to expand, a third of the various economic segments contracted in the last quarter of 2025. After contracting six out of the past nine quarters and delivering a good 5.7% expansion in Q3 2025, the Agriculture sector ended the year with a solid 3.5% expansion in real terms. The Mining segment declined 3.7% after 4.2% expansion in Q3. After flat performance in the previous period, the Utilities segment grew 5.1% in Q4.

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. While many other indicators show signs of a struggling economy in the immediate term, the solid growth in two out of these three segments might offer a more positive economic outlook in the more extended term. 

The Construction sector, which accounts for more than 4% of the economy, declined for a third consecutive period with a 5% contraction in Q4. Manufacturing, the second largest sector with more than 14% share of the overall economy, shrunk 3.1% in Q4 2025. Even more concerning is the overall structure of the contraction. While the nondurable goods sub-segment expanded 1.3%, the durable goods sub-segment contracted 7.2%, which is an indicator of potentially deeper structural concerns for long-term economic growth. The Wholesale and Retail trades expanded slower than in the previous period, but still delivered growth of 1.3% and 1.4%, respectively. However, The Transportation and Warehousing sub-segment reversed the 8% expansion from the previous period and contracted 5.6% in the last quarter of 2025.

The Information segment delivered another solid growth of 7.2% to make it four consecutive periods of expansion. The largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – expanded 2%, which followed three consecutive quarters of growth between 2.1% and 2.8%.

The Professional and business services sector reversed growth from the previous period and shrunk 2.7% in real terms. However, the Educational services, health care, and social assistance – which accounts for nearly 10% of the overall economy – tempered its growth of 6.3% from the previous quarter and expanded 2.7% in Q4. Within this segment, educational services contracted 1.3%, while health care and social services expanded 3.3%. The Arts, entertainment, recreation, accommodation, and food services sector remained unchanged overall. However, the arts, entertainment, and recreation, sub-segment expanded 4.8%, and the accommodation, and food services sub-segment declined 1.5%.

After contracting for two consecutive quarters to start 2025, total government spending followed up a 2.1% increase from Q3 2025 with a 4.7% contraction in the last quarter of 2025. The federal government spending cut of more than 18% drove the overall contraction of the segment. While federal government workers did receive back pay, some of this spending decline still might be the result of the October/November 2025 federal government shutdown. State and local government spending still increased nearly 2%.

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.

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Chapman University March 9, 2026

Mark Skousen:

Welcome to, Chapman and my class, Financial Economics. Let me first, welcome you. I understand that in January you will be celebrating your 100th birthday, is that correct?

Vernon Smith: That’s correct.

MS: I think that’s worth the applause right there. Especially that you’re still active, I think that’s fantastic. I think that the last time you talked to me, you said your goal was to live to 112.

VS: No, I had an ancestor, a Lomax ancestor, that lived to be 105, and my object is to beat him. So I’m looking to live to 106, at least.

MS: Yeah, that would be fantastic. Well, as you know, today is Adam Smith Day, March 9th, the 250th anniversary of the Wealth of Nations.

VS: Yes.

MS: Let me ask you a question. You have recently written a book called Adam Smith’s Theory of Society. Tell me, what is your main thesis of that book, and which book, The Wealth of Nations or The Theory of Moral Sentiments… do you think they both work together, or do you think they, they tell different stories?

VS: Oh, they work together magnificently. And one of the great misunderstandings of Adam Smith is the myth that they didn’t work together. You see, in my book, Adam Smith’s Theory of Society, I’m primarily talking about the Adam Smith in The Theory of Moral Sentiments, but also, to some extent, the Adam Smith in the Lectures on Jurisprudence, and only to a rather much smaller extent, The Wealth of Nations, because I see The Wealth of Nations as simply working out his basic thinking about society in terms of economics, and I see that as fairly straightforward.

The more fundamental contribution is in what I call his “theory of society”. And what that concerns is how order in society emerges from the human propensity to create and follow rules that govern their day-to-day interactions. It’s a theory of rule formation and rule following that characterizes human action. It’s not utilitarian. Most of human action, according to Adam Smith, is driven by our desire to get along with each other in our neighborhoods and communities. From the time we are born, but in particular, by the time when we first start to school, Smith says that we start to learn the principles of self-command.

The concept of self-command is very important in Adam Smith, because that’s the reason for self-governing being of importance and the rules we start to learn. He says it begins in earnest about the time we first start the school.

Because, he says, our playfellows are not as tolerant of our expressions of anger as our parents. He says, our parents are much more forgiving. And so that’s when we enter the great school of self-command – it’s when we first have playmates.

And he says, no one can hardly live long enough not to continue to learn in this school of self-command. This is the key to understanding Smith’s way of thinking. Human society is able to survive civil wars, huge disruptions. At least where these principles of freedom are available, the society returns to normal, regular day-to-day growth and development. In my view, it’s an absolutely fantastic, magnificent model of human society, and it’s basically correct.

MS: Vernon, let me ask you a question about the invisible hand doctrine, which he uses only once in The Wealth of Nations, and only once in The Theory of Moral Sentiments, both in the middle of each book. How is it possible, according to Adam Smith, how is it possible that private self-interest, selfishness that man tends to be…How is it possible that you can convert that private interest into the public benefit, which is the main argument of the invisible hand? Isn’t that a very dangerous doctrine?

VS: Well, let me first point out that Smith only uses the term self-interest once in The Wealth of Nations – and that’s in regard to the conduct and behavior of the inferior clergy of Rome. He uses it nowhere else. What he talks about is people. He says, every man should be free, perfectly free, to follow – providing that he does not violate the laws of justice – should be perfectly free to follow his own interest in his own way. Smith’s phrase is “own interest in his own way”, not selfish interest. That’s one of the great misunderstandings of The Wealth of Nations. Almost everyone reads it and thinks it’s about the self-interest. But that’s not what Adam Smith says. Read what he says. Search on the word “self-interest” in The Wealth of Nations. It only appears once. On the other hand, search on “own interest”. And this is what he’s talking about, because our own interest includes and takes into account the interest of others because we have to live peaceably with others. We desire to get along with them. And this is what drives our propensity to create and follow rules starting from about the time we first have playfellows. So, I think it’s important that I sort of introduce the corrections that I think are important in understanding Adam Smith, because the more popular views, and even the many of the academic views are not really based upon a careful reading of Adam Smith, and particularly it’s not – and usually it doesn’t involve The Theory of Moral Sentiments at all. And that’s where he develops his basic theory of society, and what drives it, and what creates order in societies.

MS: So, Vernon, you quoted this statement about every man, “As long as he does not violate the laws of justice, is left perfectly free to pursue his own interests his own way. And to bring both his industry and capital into competition with those of any other man or order of men.”

VS: Yes.

MS: What’s surprising to me is that that’s found at the end of Book 4. In my version, page 651. It’s like it’s buried about three-quarters of the way through his book. Did you find it unusual that he took that long to develop his thesis, and he stuck it in the end of the book – instead of like most people who give their thesis, their basic concept in the introduction. Yet Adam Smith starts off with division of labor, and you don’t get to this system of natural liberty – which is what he called this model of his – until the end of Book 4. Do you think that’s a source of the problem with Adam Smith is that he wasn’t very well organized?

VS: Well, you know Mark, I think that you’re making a valid point. I think that he saw himself as having a lot of work to do before he got around to making that statement. You see, the basic theory of markets and of human action in The Wealth of Nations appears in the first seven chapters, because this is where Smith develops the idea that, wealth is created by specialization. He calls it the division of labor. But wealth is created by the specialization of all kinds of resources, and that process occurs through markets. He says that the division of labor is limited by the extent of the market. The greater is the extent of the market, the greater is specialization, and the greater is the creation of wealth – the engine for creating wealth. This is people discovering that they don’t have to produce all the items that they consume. They can get this from others. They have only to concentrate on the thing that they can earn the most income and wealth by pursuing, and then they can buy whatever else they need. So, Smith is sort of developing that idea. Moreover, this is an invisible force because people are not aware of it. People are subject. The real invisible hand, champion was Isaac Newton. Now Isaac Newton didn’t die until 1727. So, he lived a quarter of a century in to Adam Smith’s 18th century England and Scotland.

What had Isaac Newton done? He had showed that all the forces acting between heavenly bodies everywhere could be understood in terms of an invisible force of gravity that connected them. He had his basic equation that the force acting between two masses is proportional to the product of the masses, and varies inversely as the square of the distance between them. And the shadow of Isaac Newton was a long one, and was cast well across the 18th century.

What I see Adam Smith doing is working out for society and economy the effect of invisible forces that we’re not aware of, that humans create the rules and follow the rules that create order and enable prosperity. But, it’s not a conscious process in humans, and in fact, it takes place without them realizing the work that is done by people’s desire to get along with each other in their neighborhoods, and the learning of rules in order to facilitate that getting along with each other.

MS: So, you’re arguing that the invisible hand concept came from Isaac Newton and gravity being invisible, rather than the Calvinist view that it’s the invisible God. God is invisible, so we have to have a level of faith that he exists, and some have little faith, and some have no faith, and some have great faith. Could that not be the same? Couldn’t you apply the invisible hand doctrine in a religious way, as some analysts have?

VS: Well, Smith didn’t have any trouble with the idea that all of this is due to a benevolent God who is watching out for us. He is the architect also of nature which involves the day-to-day ground rules that we learn living with each other that enables us to get along. Smith saw really a creator. He’s got various metaphors and terms he uses. He talks about the great author of nature in capital letters. The great author that creates in us this capacity to follow rules and achieve order through our day-to-day interactions.

He sees God operating that. Smith was a deist who believed passionately in God. In fact, why else would he refer to our savior Jesus? He was a Christian. If you go through the theory of moral sentiments and look at where he’s discussing these things, he sees no contradiction at all between faith – believing in the God of Christianity – and all of these rules of order that he’s talking about for society and for economy when he writes The Wealth of Nations.

MS: Let me change the subject a little bit and talk about what Adam Smith’s The Wealth of Nations is most famous for, and that is his advocacy of free trade. This seemed to be a great victory of Adam Smith, and almost all economists are in agreement that free trade is what we should have. But now, today, we are seeing a whole new wave of protectionism, trade wars, America first, and so forth. What is your reaction? What do you think Adam Smith would think of today’s trade war?

VS: He wouldn’t be surprised, because he understood that politicians have to get elected and they are going to focus typically on the worker, and not the consumer. Smith is talking about buyers in general – both consumers and investors – the importance of them being free. The reason why you don’t want to impede, and interfere with trade is because trade is the basis through trade and markets that people discover and follow the forms of specialization which suit them best. If everyone is free to specialize as he sees fit, and therefore earn as much income as he can, that’s the other side of that is wealth creation. That’s not only making yourself better off, you’re making other people better off when they trade with you. So, it’s actually really quite brilliant, because he’s able to put his finger on the fundamental sources of growth, prosperity, and human betterment, also to espouse policies that further that. You want to interfere with that trade as little as possible.

MS: Are you an optimist, like Adam Smith, or are you a pessimist that we are going backwards towards protectionism – a Fortress America policy – or do you think that the cat is out of the bag, and that globalization is here to stay, and this is just a temporary glitch in the movement toward free trade?

VS: I’s a temporary glitch. You see, we take two steps forward and fall back a step. It’s not orderly and straightforward and obvious to everyone, but Smith saw, through all of that mist. I think if you read Adam Smith and The Wealth of Nations, you get a very clear and concise argument in favor of freedom of exchange. All attempts to interfere with that are always attempts to try to benefit some particular class, or group, or nation. Politicians typically are not able to think properly about this.

I think that Trump seems to actually believe that the trade deficit – importing more than you export – involves a deadweight loss to Americans, and of course it doesn’t. It in fact, it’s maximizing the benefit of consumers and gives no preference to American workers. Because, if you can buy something more cheaply abroad, that releases resources in your own country to allocate more effectively, and to invest more effectively. So, it’s a very simple proposition. But it’s not obvious to the average person, and the typical politician benefits by exploiting the fact that it’s not obvious to every person.

MS: But let me ask you about a classic quote, it’s not in The Wealth of Nations or The Theory of Mortal Sentiments. I think it was in 1755 that he said, “Little else is required to carry a state to the highest degree of opulence but peace, easy taxes, and a tolerable administration of justice.”

This brings up the issue of war. What was Adam Smith’s view of war? I mean, it seems like the West – the United States and Israel – are trying to force Iran into a liberal democracy, and they seem to be fighting this. So, what’s your opinion of this statement about peace, easy taxes, and a tolerable administration of justice? What’s Adam Smith’s view? What’s your view about war? Is war essential sometimes?

VS: No, those three items that Adam Smith’s mentions you’ll see are all important, and also, they need to come from the bottom. It doesn’t work for the government to try to impose things like this from the top. And, because imposing from the top is not the same thing as following them – following them naturally and then returning to them when you get deviated or pushed off that path – each person is best able to judge for himself how to allocate his resources and what types of employment to use. In doing this, he not only benefits himself, but he benefits others, because of the fact that anyone who trades with others, they share gains from trade. So, if I do better, then that enables others to do better that I trade with, because we all increase each other’s productivity and welfare through trade. And his recognition of this was his true genius, and his ability to write in an articulate way about it.

MS: Alan Greenspan, the former Fed chairman, has written a book called Capitalism in America, and in it he says that no country has adopted the Adam Smith model more than America, the United States, and that explains America’s exceptionalism in the world. He [Smith] actually predicted that America would at one point become one of the most dominant empires in the world. He actually uses the word “empire”. Do you think this is an accurate prophecy?

VS: It’s absolutely correct. The United States’ founders all had read The Wealth of Nations – Ben Franklin, Thomas Jefferson, Alexander Hamilton, Madison.  These guys all knew their Adam Smith – and that was The Wealth of Nations. I presume that many of them also probably had read The Theory of Moral Sentiments, although they don’t talk about it, because The Theory of Moral Sentiments doesn’t lend itself directly to economic policy issues in the way that The Wealth of Nations does. So, heads of state were the ones that needed to read The Wealth of Nations. And they did, certainly in the English speaking world.

I quite agree that American exceptionalism is very much due to the fact that our Constitution comes right out of the principles that you find in The Theory of Moral Sentiments – the idea that you are innocent until you’re proved guilty, the ideas like this – that center in the individual a certain trust on average to do the right thing. That is coming from these optimistic principles of social order that Smith articulates in The Theory of Moral Sentiments. And our founders had the genius to create a constitution with fundamental rights that are really based in a very essential way on what we now call classical liberalism – and classical liberalism was about 90% Adam Smith.

He had forerunners. It isn’t that he was alone. A lot of these ideas came up early, but he brought them together in an astonishingly effective way, and so it’s no surprise that his works are today still read. No educated person can claim to be… to have finished his education, or even hardly begun, if he hasn’t read The Theory of Moral Settlements, The Wealth of Nations, and I would add his Lectures on Jurisprudence. Oh, and his History of Astronomy, which is another great little book.

MS: So, you received your Nobel Prize for your work in experimental economics. You work with Bart Wilson on these areas. It’s a whole major part of economics now. What would Adam Smith think of experimental economics? Is this something he even conceived would be possible?

VS: You know, both David Hume and Adam Smith saw themselves as working in the area … Let’s see, what did they call it? They use the phrase “experimental explorations” – “experimental discovery”. What they’re talking about is cases. You base your theory on cases and the observable behavior as it comes to us in particular cases. Experimental economics just simply extended this into the lab. But both Hume and Smith would have been wildly happy to find that in my century someone developed that idea. And there was more than one. It wasn’t just me. I was one of about three that helped to develop this. You could actually create microcosms of interdependent worlds in the laboratory and study them at a level where you could exercise control over some of the variables and see what happens to others, and use this to articulate better theories, to test theories and to improve them.

MS: It’s interesting that Austrian economist Ludwig von Mises once said, “You can’t experiment in economics.” You remember when he said that?

VS: Yeah, that’s cause he never tried. I mean, it’s not that he never tried. He had a conception of experiment, which I think I would not follow. The thing is, experiments are simply just a way of trying out ideas, to test whether your thinking is right.

My thinking was dead wrong about markets. In my first experiment I had trouble believing the results, because they contradicted everything I thought I believed and had been taught, because mid-20th century economic theory was dominated by figures like William Stanley Jevons, who believed that to get a supply and demand equilibrium, everyone would have to have complete information – complete and perfect information on the conditions of supply and demand. And what my sophomores at Purdue taught me in the second semester that I was at Purdue was that that was baloney.

I had 22 people in that principles class. I took 11 of them. I made them buyers, and I gave them values. I assigned each of the 11 buyers a private value. They were informed that I would pay them in cash at the end of the experiment the difference between that value and the price they paid in the market if they were able to make a purchase. I gave the sellers a schedule of costs and I told them I’ll pay them the difference between the price at which they sell any item to another buyer in this room and that cost. I’ll pay them that in cash. So, I motivated them, profit-motivated them.

What was the mechanism of trade? I used an open outcry, two-sided oral auction – an oral outcry auction. Any buyer would be free to announce a bid, any seller an ask. Any buyer could raise the bid of any standing bid on the floor. Any seller could lower the ask of any standing ask on the floor. And you had a contract any time a buyer accepted the standing ask, or a seller accepted the standing bid. What’s interesting is that they got right into that.

Following those rules is so completely natural for people that you can read them instructions, and they just do it. They begin to trade and the very first contracts were already fairly close to the equilibrium, and later contracts went even closer. There’s no way that any economist anywhere, based upon extant theory of the time, would believe that that’s possible – that a bunch of sophomores could walk in the room, you could instruct them the way I did, and they could then find the supply and demand equilibrium, which they didn’t even know.

Each person only had a small fragment of the total supply or the total demand of each individual, and that’s typical of a market. No one in the market has pre-vision of everything. You’d have to have everybody know everybody else’s willingness to pay or willingness to accept, and they don’t.

Smith knew about auctions. There’s no place where Smith tells you, “Look, I’m going to tell you about auctions,” and then describes them. He doesn’t do that. But if you search on the word “auction” in The Wealth of Nations and in his other works, you find that he was very familiar with auctions, and he understood that in an auction of an item, the bids start low, and there’s lots of them, and as those bids rise, they become thin. And finally there’s only one last bidder, and he’s the winner of the item. The item is knocked down to him. Adam Smith understood that. I can show you passages where he’s talking about auctions, and it’s clear that he understands that.

I think in chapter 7 of The Wealth of Nations he talks about buyers and sellers haggling and bargaining in the market. The buyers all come with a willingness to pay. The sellers all come with a willingness to accept a maximum. These are maximums and these are bargaining strategies that they follow. He also tells you that if price starts low, it tends to be bid up by the action of buyers. If it starts too high, it tends to be bid down by the action of sellers competing with each other. So

Mark, that’s exactly what happens in an experiment, in a laboratory experiment if you study the data – what happens to prices, and how they move when they’re away from the equilibrium price. It exactly follows that pattern. Buyers are more active if the price is too low. Sellers are the more active agents if the price is too high. I didn’t know that when I did my experiment. I discovered that years later – that this guy, Adam Smith, in Chapter 7, had a good handle and being able to understand my experimental outcomes, and even predict.

MS: Vernon, we only just have a couple more minutes, and I did want to end with a question I sent you. I don’t know if you had a chance to look at it, but the question I want to ask you, and I think it would be of interest to all of our students is, “Since you’re 99 years of age, you’ve lived a long, happy life, you’ve taught at 10 universities or more. What’s the greatest lesson in life that you have learned?”

VS: You’ll learn the most when you are wrong. My whole career, is based upon being spectacularly wrong three times. The first time I was wrong was when I did those first experiments in the classroom and discovered that sophomores had no trouble finding the equilibrium. I would never in the world believe that that’s true. In fact, I resisted. It took me a while. I had to do more experiments. I couldn’t be satisfied with the one. I thought there was something wrong with that experiment. I had to do more. But my students in those experiments convinced me I was wrong. You don’t learn by being right, you learn by being wrong and asking why, and exploring why, and in that process is where all learning is. So, don’t be afraid of being wrong. Just don’t shrink. When you find yourself wrong, don’t shrink from trying to understand better why you were wrong, and what was wrong with your thinking, how your thinking has changed by discovering you were wrong.

MS: Thank you, Vernon, thank you very much, and let’s give applause.

VS: Okay. Well, thank you, Mark. It’s a great pleasure.

* * *

Mr. Skousen holds a chair in free enterprise at Chapman University. His latest book is “The Greatest American: Benjamin Franklin, the World’s Most Versatile Genius.”

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* * *

Share the Wealth, Don’t Redistribute It

Workers become wealthy thanks to 401(k)s, stock ownership plans and stock-option grants.

Socialism is in vogue again. Critics of capitalism call the market economy unfair, arguing that big corporations don’t pay low-income employees a living wage. They draw on studies showing that inequality has grown dramatically in both income and wealth. Their solution: a highly progressive income tax, or even a wealth tax, on the superrich, and a minimum wage of $20 an hour or more.

These economically destructive measures are unnecessary and would disrupt the positive changes happening in capital-labor relations. The private sector is quietly solving the inequality problem without more redistribution and wage controls.

How? Companies both large and small offer generous profit-sharing programs for employees—401(k) plans, stock options and discounted stock-purchase plans.

Fidelity recently reported that there are more 401(k) millionaires on its platform than ever before. More than half a million Americans have at least $1 million in Fidelity 401(k) plans. In 2025 retirement plans marked a milestone—thanks to the growth of 401(k)s and other defined-contribution instruments, more than half of private-sector workers are actively contributing to an employer-sponsored retirement plans.

Stock programs are also making workers wealthy. Pitt Hyde founded car-parts retailer AutoZone in 1979. Forbes lists Mr. Hyde as one of the 400 wealthiest people in America, and AutoZone’s top executives are multimillionaires. More than 4,000 lower-level AutoZone employees have become millionaires too.

AutoZone offers stock discounts, options and matching 401(k) contributions to its 125,000 employees. Executives and key employees (including store managers) get stock options, and all U.S.-based employees can buy company stock at a 15% discount. AutoZone matches an average of 4% of income if an employee contributes at least 5% of his income to his 401(k) plan.

In the past 20 years, the company has returned an average annualized gain of 21%, double the S&P 500. All employees benefit one way or another.

Mr. Hyde says, “I started with this philosophy: Everybody wants to be part of a winning team.” Chairman Bill Rhodes adds, “Our compensation structure is one of the key elements of our success.”

AutoZone isn’t exceptional among large corporations. From the beginning, Bill Gates offered Microsoft employees stock options, so that by 2005 an estimated 12,000 rank-and-file employees had become millionaires. In 2003 Microsoft replaced its stock-option plan with restricted stock units, which grow in value when the stock goes up. The company’s stock value has increased tenfold in 10 years, not counting dividends. It also offers all employees a 10% discount on stock and matches half of 401(k) contributions, up to nearly $12,000 a year.

Today I estimate that more than 30,000 Microsoft employees, from secretaries to janitors, have become millionaires.

Home Depot is another example. Employees receive performance bonuses twice a year if they achieve their individual company goals. They also share in profit through discounted stock offers and their matching FutureBuilder 401(k) plans.

Co-founder Ken Langone told a reporter, “We decided everyone had to have skin in the game. We made certain that each of the four founders, including myself, would never own more than 5% of the company. The remaining shares would be owned by the public or the employees. We now have more than 3,000 associates who started pushing carts back into the store from the parking lot who are now millionaires. If there’s a better example of how capitalism works, you’ll have to show me.”

Or consider Nvidia. According to a recent Benzinga report, the tech company is producing “unprecedented wealth” for its 36,000 employees. Nearly 80% are already millionaires, with nearly half reporting a net worth exceeding $25 million.

CEO Jensen Huang highlighted the company’s practice of rewarding talent with stock and reiterated his belief in empowering small, highly skilled teams. “You take care of people and everything else takes care of itself,” he said.

According to the National Center for Employee Ownership, more than 12,000 U.S. companies currently share ownership with more than 25 million employees, and that number is increasing. The reasons for adopting profit-sharing plans vary, as do the benefits they offer.

The number one way Americans become multimillionaires isn’t through timely real estate purchases, being early investors in startups, or being paid a living wage. The formula is much simpler: consistent buying of company shares and stock indexes, usually in the form of automatic contributions from every paycheck into a retirement account, or by receiving bonuses through company stock deals.

Management guru Peter Drucker said it best: Large corporations are living up to his goal of being “the representative nonrevolutionary social institution,” and in most cases are far superior to plans by governments, charities and nonprofits to serve the retirement, medical and other social needs of their employees.

Highly profitable firms are visionaries. Democratic socialism is all about taxing successful entrepreneurs and running out of other people’s money; democratic capitalism is all about increasing profit margins, sharing the wealth and growing prosperous together.

* * *

Mr. Skousen holds a chair in free enterprise at Chapman University. His latest book is “The Greatest American: Benjamin Franklin, the World’s Most Versatile Genius.”

The post How Free Enterprise is Solving the Inequality Problem appeared first on MSKOUSEN.COM.

This year 2026, the 250^th anniversary of our nation’s founding, will be a memorable one for me, and for my subscribers.

Starting in February, I will no longer write Forecasts & Strategies. The Oxford Club will begin publishing my new monthly newsletter, “THE SKOUSEN REPORT,” subtitled, “Central Intelligence from America’s Economist.”  In this newsletter, I will continue to recommend my favorite profitable investment strategies, carried over from my many years at Forecasts & Strategies. The Skousen Report will offer many new recommendations in these exciting and ever-changing markets on Wall Street.

Here my press release:  Mark Skousen, America’s Economist, Launches New Era at The Oxford Club, Debuts The Skousen Report for Today’s Markets

Since 1980, I have been the editor in chief of Forecasts & Strategies, an award-winning monthly investment newsletter and economic commentary. In the year Ronald Reagan was elected president, my publisher Tom Phillips and I came up with the name, and it’s been quite a ride, having survived and prospered through booms and busts, bull and bear markets, and one crisis after another.

During those decades, I’ve had the privilege of befriending and drawing upon the wisdom of top business leaders, Nobel prize economists, influential financial gurus, and effective legislators at all levels of government, including presidents of the United States and foreign countries.

Forecasts & Strategies continued expanding when my newsletter was acquired by Eagle Publishing in 2004, thanks to the support of Jeff Carneal and Roger Michalski, and then in 2014, by Salem Communications, a publicly-traded media company.  I appreciate the support and efforts by Eagle publishers and editors over the years in fulfilling and marketing my services.

Through it all, I have grown and improved as a student and advisor in all things economic, financial and political.  Last year Forecasts & Strategies had its best year ever, with all 15 recommended stocks and funds profitable by single, double and triple digits.  Our well-diversified portfolio of tech and financial stocks, precious metals, commodities increased 35%, more than doubled the stock indexes.  Our mining stock more than tripled in value in 2025.

It’s been an incredible run, reaching out to thousands of investors who wanted good practical advice on how to become financially independent.

My monthly newsletter has continued uninterrupted for 45 years with over 500 issues, plus the publication of special reports as well as my weekly e-letter, Skousen CAFÉ, and four trading services….plus writing several bestselling financial books and traveling to all 50 states and 81 countries (having lived in several), while giving lectures to over 125 colleges and universities and over 30 investment cruises and hundreds of investment conferences, in addition to producing FreedomFest, “the world’s largest gathering of free minds” every year in Las Vegas and other major cities in the US.

Practical education has always played an important role in my life; I’ve always had one foot in the real world as a publisher, investor and advisor, and another in the academic world, teaching students at major colleges and universities, including Columbia Business School, and most recently Chapman University as a presidential fellow and Doti-Spogli Chair of Free Enterprise.

I could not have done it without the assistance of my wife, Jo Ann, who served as my associate editor and co-author during my entire career, while raising our five children, and pursuing her own goals, including teaching at three universities, writing books and movie reviews, and running the Anthem film festival.

Time to Move On from Eagle Publishing to the Oxford Club

But now I’ve decided to make a change.  The Oxford Club, one of the world’s largest and most influential publishers of alternative newsletters and trading services, made me a tantalizing offer when my contract with Eagle came up for renewal this month.

As Rachel Gearhart, publisher of the Oxford Club, wrote me, “Your background as an economist, bestselling author, historian, and former CIA analyst makes you an ideal fit for the role of Macroeconomic Strategist, and we believe your perspective fills a critical and growing need in today’s market environment.”

The Oxford Club is a world-class franchise that has over 260,000 paid subscribers and a vast affiliate network that reaches more than 1 million buyers.  Their advisory services reach more than 840,000 readers a week.  Their editors are written by some of the most prestigious financial advisors in the country, including Alexander Green, Marc Lichtenfeld, Bryan Bottarelli, and Karim Rahemtulla.

I’ve had a long-standing relationship with the Oxford Club, having spoken at nearly every one of their Investment U Conference over the past 25 years.  I also served as Chairman of Investment U from 2005 to 2007.

As the Macroeconomic Strategist at the Oxford Club, I will fulfill an important role analyzing economic and political trends in the US and abroad, and their impact on the financial markets.  In addition, I will bring with me my experience recommending the best ways to profit from trends in precious metals, cryptocurrencies and blockchain technology, areas that have not previously been covered by other editors.

For starters, The Skousen Report will go out immediately to over 23,000 subscribers of the Chairman’s Circle and will expand from there.

In addition, I’ll be adding several short-term trading services in technology, precious metals and other markets, as I have done before with Eagle.

I will also continue to write my popular Skousen CAFÉ eletter as part of the weekly letters published by Oxford Club, “Liberty through Wealth” and “Wealth Retirement.”

A Family Affair

Another reason I decided to switch to the Oxford Club is that it will give me the opportunity to work with my two sons, Tim and Todd; Todd has long been a member of the executive team and former CEO of the Oxford Club; and Tim, who been my co-editor of the TNT Trader, will be presenting his inside knowledge of AI, tech stocks and all-things-crypto, in a new trading service at the Oxford Club. My wife Jo Ann will continue to be my assistant editor of the Skousen Report.  All in all, it will be a family affair, which will bring us greater satisfaction.

It is my intention to continue writing my Skousen Letter, trading services and eletters for many years.

When Franklin wrote that “life should finish handsomely,” he did not know that he would live another 28 years of an exciting new career as a diplomat and legislator in the founding of a new nation.  It is my hope to do my part in supporting an America that Franklin predicted would be a “great and happy nation.”

Please join me on this exciting new venture as we study “signs of the times” and live long and prosper!

How to Sign Up for My New Newsletter, THE SKOUSEN REPORT

Oxford Club has generously offered a special deal to all subscribers to Forecasts & Strategies:  A free one-year subscription to THE SKOUSEN REPORT.  To sign up, go to:   www.SkousenOxford.com  If you are not a subscriber, you can sign up for a one-year introductory subscription for only $199.

Starting in February, I’ll also write a weekly column (similar to my Skousen CAFÉ) for the Oxford Club’s free e-letter, “Liberty Through Wealth.”  To sign up, go to Liberty Through Wealth.  It’s 100% free.

My Tribute to Milton Friedman on C-SPAN BookTV

Yours for peace, prosperity and liberty, AEIOU,

Mark Skousen

The post Big Announcement: I’m Starting a New Career at the Oxford Club, and You Are Invited to Join Me! appeared first on MSKOUSEN.COM.

– 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.

# # #

The post The Divided Economy: Business Still Trying to Catch Up to the Consumer Boom appeared first on MSKOUSEN.COM.

– 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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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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[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.

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ARRIVING TODAY?

Thursday Registration Hours: 8:00 am – 5:00 pm

Registration Desk Location: Lobby of Palm Springs Convention Center, just inside the west entrance off of Calle Alvarado.

Parking at the convention center is free (no overnight parking) — we recommend using the west parking lot because the east doors will be locked. (So be careful when exiting the building that you don’t get locked out accidentally!)

WHERE’S THE AGENDA?
To keep the agenda as accurate as possible with any new changes, we’ve gone completely digital. Well, almost completely! We will have simple black-and-white printed copies of the daily schedule available for pickup at the registration desk.

The best way to see what’s on the schedule is to download the “Sched” app and search for “FreedomFest 2025” within the app. You can also view the agenda online.

MORNING SESSIONS
Early riser? At 7:00 am each day, join Lauren Williams on the Renaissance pool deck for Morning Yoga! (Pro tip: Wear your yoga outfit over a bathing suit so you can jump in the pool after yoga!) Then, join us for a light continental breakfast in the exhibit hall starting at 8:00 am.

Anthem movies — included in your FreedomFest pass — are available all day long in Smoketree C/D/E.

Grab a coffee and enjoy a movie every morning at 8:30 am before the general session begins.

Join Kennedy on the main stage this morning starting at 9:30 am for general sessions starring Bret Weinstein, Ryan Holiday, and more.

WHITE MATES IN TWO
In “Galt’s Gulch” (the attendee lounge inside the Exhibit Hall), try your skill at the “White Mates in Two” chess challenge provided each day. The first to solve it wins an American silver dollar! (But you have to track down Mark Skousen to receive your award!)

And don’t forget about the Selfie Contest! Post your FreedomFest selfies on social media (X, Facebook, Instagram) with @thefreedomfest and #ffest25 to enter the contest. The winner of the best selfie will win two FREE tickets to FreedomFest 2026!

EXHIBIT HALL UPDATES
Today’s book signings feature Steve Forbes, Marc Eliot, Leonard E. Reed Book Award winner Art Laffer, Twila Brase, and many other incredible authors. If you don’t have their books yet, scan the QR code at the FreedomFest Bookstore to order your copy. The author will sign an official book plate that you can adhere to the inside page of your book when you arrive home!

Tour the exhibit hall with Valerie Durham at 1:00 pm!

WHERE ARE TODAY’S LUNCHEONS AND RECEPTIONS?
With this year’s extended lunch break from 11:35 to 1:00 pm, you have more time to network, meet with exhibitors, catch an Anthem film, or even take a refreshing dip in the pool!

Arrive on time! If you have a ticket to a VIP luncheon, bear in mind that at 11:55, we fill available seats with attendees who have been on the waitlist.

• The Stoic Feast: A Q&A Luncheon with Ryan Holiday on Mastering Life’s Challenges | 11:45 am | Primrose C (ticket required)
• DonorsTrust Clients & Friends Luncheon | 11:45 am | Primrose D (by invitation only – visit booth #421 before lunch!)
• Concession Snack & Lunch Kiosk | 10:00 am – 2:00 pm (lunch starts at 11:00 am) | Exhibit Hall
  • Pro Tip: Pick up a snack, sandwich, wrap, salad, or rice bowl and bring it into the Anthem Theater to watch “The Reformers” with a post-panel discussion with Bret Einstein and James Lindsay!

AFTERNOON SESSIONS
Breakout sessions are the perfect opportunity to “choose your own adventure.” If you’re attending with another person, consider splitting up and exchanging notes on multiple sessions.

Want to learn the best investment strategies?
Attend the Global Financial Summit in Primrose A.

Live Performance! For the first time ever, Anthem Film Festival is bringing you a live staged performance of Vaclav Havel’s remarkable one-act play “Protest,” during the coffee break at 3:00.

Today’s afternoon general session kicks off with the Global Economic Summit’s “Tariff-ying” Debate: Trade Wars, Protectionism, and the Future of Global Markets,” and ends with the return of the FreedomFest Mock Trial, where twelve attendee jurors will deliver the verdict on Big Pharma. Sparks will fly!

FREEDOMFEST AFTER DARK
We have planned a variety of paid and free activities this evening! Plus, Palm Canyon Drive — Palm Springs’ “Main Street” will open up to pedestrians only for their Thursday Night Street Festival from 7:00 to 10:00 pm. Enjoy your night out!

• Anthem Filmmakers Reception & Master Class | 6:15 pm | Sierra (ticket required for non-filmmakers)
• Anthem Movie: “Motherland” starring Holland Taylor | Smoketree C/D/E | 8:00 pm
• Cigar Reception with Perfect Money Foundation and Brothers Solutions & Imports | 8:00 pm | Boulders Terrace (open to all!)
• Conversation Circle – Resolved: Our Political Parties are Obsolete Institutions | 8:00 pm | Ventura (sponsored by Braver Angels)
• Conversation Circle – Are You Religious or Spiritual? A Conversation on the Relevance of Religion Today with Daniel Kennedy of Basic Bible Guide | 8:00 pm | Mesquite C
• Karaoke | 9:00 pm – midnight | Hotel ZOSO lobby bar – Join Avens O’Brien and the FreedomFest karaoke crew!

THE PREMIUM INVESTMENT TRAINING WORKSHOP IS TOMORROW MORNING!
Did you get your ticket yet? Tomorrow at 8:00 am, enjoy breakfast during Eagle Publishing’s session “The Power of Scalping: Learn How We Have a 91.4% Winning Track Record Trading SPY Options,” where you will learn invaluable day trading skills from Hugh Grossman and Jon Johnson. Visit the Eagle booth #320, the registration desk, or your online registration to purchase a ticket to this special session. 

SATURDAY NIGHT BANQUET & PARTY
The last night of FreedomFest is always an uproarious affair with dinner, drinks, dancing, and more!

• Pose for the “paparazzi” on the red carpet
• Cheer on Anthem’s grand prize winners
• Meet “Frank Sinatra”… then share a romantic dance with your partner while he serenades you
• Celebrate Lyn Ulbricht winning the Freedom Award
• Be dazzled by Doc Dixon and his “assistant” Kennedy’s magic show
• Dance the night away to classic pop/rock music provided by Triple AXL!

Visit the registration desk or modify your registration to purchase your ticket to this can’t-miss event!

POOL DAY ESCAPE & CABANA SOCIAL

Enjoy a pool day escape with the FreedomFest staff at the Palm Springs Surf Club Sunday from 10:00 am to 6:00 pm! Access to the surf club, which includes lounge chairs, large pool, lazy river, three water slides, and access to three restaurants and bars, is only $20 with your FreedomFest badge!

Upgrade your pass to include Ladies of Liberty Alliance’s exclusive cabana social by making a donation to the nonprofit. Top tier donations include bottomless mimosas, appetizers, dessert, private dip pool, and more. Cabana space is limited, so don’t delay!

Towels are available for purchase at the surf club. We recommend bringing your own if you can!

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“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*)[1]

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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[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 2024 is slightly less than $51 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $61 trillion in Q3 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.

The post Business Spending Flat to Close 2024, Economic Outlook Uncertain for 2025 appeared first on MSKOUSEN.COM.

“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, December 19, 2024):

Today the federal government (BEA) released 3rd quarter gross output (GO), the top-line that measures spending at all stages of production.  Real GO rose 3.1%, a substantial improvement from previous quarters, and equal to real GDP for the third quarter. This is good news. Assuming the fourth quarter GO is positive, it looks like the US avoided a recession in 2024.  Business (B2B) spending also rose 2.9%.

After increasing an average 1.2% over the preceding three quarters, the Adjusted GO (GO*)[1] – which measures spending at all stages of production – delivered a significant bump and rose 3.0% in real terms for the third quarter of 2024. For the third consecutive period the Adjusted GO growth trailed GO growth rates published by the BEA, but the gap has narrowed significantly. This is indicating that the business spending is increasing comparing to previous few periods, and signals that fears of recession from earlier in the year are dissipating quickly. It is important to keep in mind that these are third-quarter results – before we knew the results of the presidential election. With the new pro-business administration set to take office next month, and already courting heads of mayor domestic and international businesses to set growth strategies, we might see a brisk increase in business investment spending as early as the last quarter of 2024 – for which the data will be released in March 2025.

The continuously increasing growth rate of BEA’s GO numbers indicates that the economy should most likely avoid a recession and that it might be set for a strong positive growth in the next year, barring any unforeseen, black swan-type events. The one piece of the puzzle still needed for absolute confirmation of the strong economic growth to come is that the adjusted real GO (GO*) growth rate rises above the GO growth rate. The Adjusted GO has been increasing steadily over the past few quarters and its growth rate might be back above the GO growth rate as early as the fourth quarter, thus confirming the optimistic outlook for an expanding economy in 2025. 

Businesses were cautious about spending over the past four periods. However, real-term business spending (B2B) has been ramping up lately. This is a continuing indication that the business sector – which is substantially larger than the retail sector and generally has a better view of the direction of the economy than the consumers – is becoming more confident that a faster economic expansion is in the near-term future. 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.

While business spending is probably the most significant indicator, economic outlook hinges on several additional factors. The uncertainty of the U.S. presidential election is now behind us. Whether you see the results of the U.S. presidential election as good, bad or indifferent, at least the uncertainty is over, which makes other factors easier considerations. Domestically, the Federal Reserve cut interest rates yesterday to a 4.25%-4.50% range, but projects only two more quarter-percentage-point cuts in 2025.

Continued concerns of the war in Ukraine are still high on the international stage. However, hopes are that the new administration in the Executive branch might be able to broker some kind of ceasefire, or permanent solution to the conflict. While permanent solution is preferable, even a minor improvement in this conflict would go a long way into easing further trepidations about economic conditions in Europe and Asia, which are easing already on the prospect of the U.S. economic expansion. One concern that could derail U.S. economic growth are president-elect’s threats to implement wide-ranging tariffs on imports from our economic rivals like China, as well as our economic partners like Canada. 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 that we might be safe from a recession, and on the way towards a significant 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 third quarter of 2024 is slightly less than $51 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $61 trillion in Q3 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’s Q2 real growth rate of 3.2% is slightly higher than the annualized GDP growth rate of 3.1%. The static view of the nearly identical growth rates does not offer any insights about the direction of the economy. However, the dynamic view of the GO growth rate rising faster than GDP growth rate indicates that the recession fears have subsided and that the outlook on economic growth has shifted to positive going into 2025.

After four quarters of mixed signals regarding the direction of the economy in the near term, economic data for the third quarter indicates a positive shift in the economic growth outlook as we head towards 2025. The fourth-quarter and 2024 full-year GO data is scheduled to be released in late March next year, which will hopefully confirm the uptrend and help in signaling the economy’s path for the rest of 2025.

Just as close as in real terms, third-quarter 2024 nominal growth rates were similarly equal, with GDP expanding 5.0% to exceed $29.4 trillion and GO rising 5.2% to $50.3 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 5.0% in nominal terms at the end of the third quarter 2024 and is now slightly over of $60.7 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 3.0% and 3.6% in the previous two periods, nominal B2B delivered a 4.9% increase in Q3 2024, which pushed the annualized B2B spending to more than $34.8 trillion. At the same time, consumer spending expanded 5.3% – relatively flat to previous period – and currently stands just short of $20 trillion. In real terms, business spending grew 2.9%, and consumer spending expanded 3.3% 

“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 fourth-quarter and 2024 full-year GDP on January 30, 2025. The full release of Q4 Gross Output data, as well as the third estimate of GDP are scheduled for March 27, 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 the robust expansion of the overall economy, three of the major economic sectors experienced a pullback again in Q3 2024 as they did in the past two periods. Moreover, because these three sectors are in the very early stages of production, they generally are better early indicators of economic direction than later stages of production. However, the contractions were relatively mild compared to past few periods, which is a slightly positive indicator for the rest of the economy going forward.

After declining more than 9% in Q2, the Agriculture sector contracted merely 4.6% in Q3. This marks the fourth consecutive quarter of contraction in real terms for the sector. The Mining sector which posted a small gain in the previous period but contracted more than 6% in Q1, declined just 1.9% in Q3. However, the Utilities segment was the biggest mover, which followed a plummet of more than 25% in Q2 with a contraction of just 2.6% in Q3 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 was flat to the previous period. As the second-largest sector with a more than 14% share of the overall economy, the Manufacturing sector reversed a contraction of 2% in the previous period and expanded 1.5% in Q3. Furthermore, this expansion was driven by a 3.5% growth in nondurable goods, which is an even better positive sign for the extended economic outlook.

While the Wholesale trade grew nearly 6% and the Retail expanded 12.3%, the Transportation and Warehousing sector advanced 4.4%, Additionally, the Information sector increased 7.9%.

The largest segment that accounts for nearly a fifth of the overall economy – Finance, insurance, real estate, rental, and leasing – expanded 0.4%, which is in line with last period’s performance.

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 3.3% and 6.1%, and 0.7% respectively. 

After declining for three consecutive quarters, the government spending growth rate reversed direction last period, and has again done so this period. Overall government spending followed a 2.7% expansion from the last period with a 3.6% increase in Q3 2024. The main driver behind this increase was the 7.1% increase in Federal government spending, which was just 1.3% in the previous quarter. Alternatively, State and local governments grew a slightly little slower rate, and followed a 3.1% expansion from Q2 with a 2.1% increase in Q3 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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[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 2024 is slightly less than $51 trillion. By including gross sales at the wholesale and retail level, the Adjusted GO (GO*) expands to nearly $61 trillion in Q3 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.

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