Starting April 25, the Bureau of Economic Analysis will begin reporting quarterly measurements of gross output.
Gross output represents, roughly speaking, the total value of sales by producing enterprises (their turnover) in an accounting period (e.g. a quarter or a year), before subtracting the value of intermediate goods used up in production.
Gross output calculations have been done for decades, but primarily for individual economic sectors or as a relatively infrequent (and rather out of date) computation for the entire economy. That will change in April. In a WSJ Op-Ed, Mark Skousen writes:
Steven Landsfeld, director of the BEA, says this new macroeconomic tool offers a “unique perspective” and a “powerful new set of tools of analysis.” Gross output is an attempt to measure what the BEA calls the “make” economy—the total sales from the production of raw materials through intermediate producers to final wholesale and retail trade. Valued at more than $30 trillion at the end of 2013, it’s almost twice the size of gross domestic product, and far more volatile.
Skousen (who wrote a more extensive article for Forbes last year) goes on to describe the advantages of gross output, claiming that it better represents supply side-driven economic improvements in living standards, rather than the GDP use economy. It is also more sensitive to business cycle changes.
Gross output measures spending in both the “make” economy (intermediate production), and the “use” economy (final output). It is a better, more comprehensive measure of the nation’s economic activity than GDP, and a better indication of the economy’s growth prospects.
Skousen claims that while GDP adequately represents a country’s standard of living and economic growth, it underestimates the larger total economic activity, including intermediate production, and it overestimates the role of consumer spending. I don’t believe that gross output is “better” than GDP, nor do I think it will necessarily upend the belief that consumer and government spending drive the economy. Nevertheless, I’m curious why the BEA is now starting to report the measurement quarterly. Has it become a more important metric for analyzing the health of the economy (I can imagine that it might help measure the effects of outsourcing more accurately, for example)? If so, why?