Business-to-business spending is booming, and solely looking at gross domestic product misses this. Last year stagflation was a legitimate concern. Real gross domestic product rose only 2.2%, while business-to-business spending declined in real terms. In the fourth quarter last year, real GDP rose at an annual rate of 0.5%, and B2B spending declined 2.2%, according to my calculations based on Bureau of Economic Analysis and Census Bureau data. The supply chain experienced stagflation. Consumer spending was robust, but there was a mild business recession in 2025.
The economic picture is changing, and we can see it thanks to a little-known but powerful macrostatistic that measures spending at all stages of production. GDP leaves out the all-important supply chain, a leading indicator. There is a better, broader statistic that tells what’s really going on in the economy. Known as gross output, or GO, it measures spending at all stages of production. Supply-chain economics is big business. Total spending in the U.S. in the intermediate stages of production amounted to about $35 trillion in 2025, more than GDP ($31 trillion). Business spending in the supply chain is much bigger and more volatile than final consumption and does a better job of measuring the ups and downs of the business cycle.
Good news: Business activity is quickly changing this year and is exploding upward, at double-digit rates. It started in the first quarter and now has been confirmed. In the first quarter, the BEA reported a pickup in gross output. On Wednesday it was revised upward by 0.6% for a real return of 2.3% for the first quarter. Unlike GDP, it includes the value of the supply chain and all B2B spending. Wednesday’s release of second-quarter GO was a blockbuster. GO is suddenly growing faster than GDP, a significant positive trend, and one that suggests real GDP in the third quarter could be explosive. Second-quarter GO grew 5% in real terms, compared with real GDP growth of only 2.2%.
The difference is in the value of the supply chain. Business to business more than doubled compared with the first quarter and grew 13.8% in the second quarter. This is the fastest growth in business activity since the bureau started measuring the GO statistic in 2005 (excluding the postpandemic rebounds 2021-22). Moreover, business spending is growing faster than consumer spending, which grew only 3.8% in the second quarter compared with business increasing at a double-digit rate. Spending on AI and data centers is undoubtedly behind the explosive growth in business activity, and capital spending by foreign investment in the U.S. might also be contributing. Most economists focus on GDP when gauging economic outlook. But GO should be viewed as the top line in national income accounting, and GDP as the bottom line. Both metrics are essential to understanding where the economy is headed. Mr. Skousen holds a chair in free enterprise at Chapman University and is author of “The Making of Modern Economics.”
Source: Wall Street Journal US Business · Summarized by HeadlinesBriefing