This Data Shows How Weird This Recession Was
First, let me introduce the most important economic statistic that you’ve (probably) never heard of, Gross Output. It was invented by economist Mark Skousen and was adopted by the federal government, which now reports it quarterly. Unlike GDP, Gross Output includes the stages of production which occur before the transactions which are counted in GDP. It’s a fuller picture, more like a cat-scan than an X-ray.
Gross output, or GO, measures the total economic activity in the production of new goods and services. It is a broader measure of an economy than it’s gross domestic product, or GDP, which is limited to an economy’s final output.
Now that we know what GO is, let’s look at how it changes over time. We also subtracted GDP and government spending out of GO, leaving behind an approximation of what we call “Business Output.”
Here’s a zoom-in of the last 4 years.
In every other cycle shown, Business Output was more variable than Gross Output. During downturns, business turned down faster. During recoveries, business recovered faster. But in this latest COVID crisis, business was a little less variable. This means that the supply chain was less broken than the final link, retail consumption. Business bet that things would get back to normal and kept growing, refining, building the stuff that eventually consumers would consume. The sharp upturn in the second half of the year shows that they were probably right to do so.
What does that suggest about the future? We took the data represented by that green line above and put it on a bar chart, and zoomed in on recent conditions. That’s the top half of the image below. The bottom half is the PMI, which is one of the most common measurements of real-time business optimism by those who run the supply chain.
Not surprisingly, when you line those two things up you see that when the people running supply chains are saying things are bad, that supply chains were in fact shrinking. The universe makes sense, at least that part of it.
So what does this pattern suggest about the future? Notice that we don’t yet have GO for the 4th quarter, which means we don’t yet have Business Output which we calculate using GO for that quarter. But we do have the PMI surveys, and they have been doing quite well, thank you very much for the past three months. If the pattern holds, that means a good outlook for Business Output.
Originally published on Townhall Finance.
Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.
Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.
Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.
Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.
Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.
Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.
Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of their seven children.
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