“Though not one in a thousand recognizes it, it is business, not consumers, that is the heart of the economy. When business produces profitably, they create income-paying jobs and thus consumers spend.” — Larry Kudlow, Director, National Economic Council
On this Christmas Eve, I’m happy to report some great economic news from the U.S. Commerce Department.
Using gross output (GO) data from the 2020 third quarter, my Skousen Business Spending (B2B) Index soared from the second quarter by 10%, far more than real gross domestic product (GDP), up 7.5%, or consumer spending, jumping 8.6%.
Note: I am giving you quarterly data. The U.S. Bureau of Economic Analysis (BEA) annualizes all these figures. On an annualized basis, real business-to-business (B2B) spending rose 39%, compared to 33% for GDP and 35% for consumer spending.
To learn all about what GO and B2B statistics mean, please watch this one-hour video made on September 30, 2020, which I called “GO Day.” It includes interviews with Steve Forbes and other experts.
For full details, see my press release at www.grossoutput.com.
This is good news for several reasons:
First, it demonstrates the remarkable resilience of the U.S. economy in responding quickly to the coronavirus scare and abusive government lockdowns.
Despite the collapse of some parts of the economy and severe unemployment due to the shutdown, the U.S. economy appears to be making a V-shaped recovery. The e-commerce, health care and educational sectors moved quickly to adjust to the new environment.
Second, the dramatic advance in B2B spending justified the bull market on Wall Street, where all the major indexes hit all-time highs this fall.
Third, the supply chain (intermediate spending at each stage of production) is a leading indicator, suggesting that 2021 will be a boom year.
The fact that B2B spending is now growing faster than consumer spending and GDP suggests that in the fourth quarter, and maybe even 2021, the U.S. economy will keep growing.
According to Atlanta GDP Now, fourth-quarter GDP is expected to increase 2-3% (11.1% annualized). At this time, I fully expect the government to report that the economy at the end of 2020 will reach an all-time high in terms of economic output.
We will know for sure on January 28, 2021, when the U.S. government will announce the first estimate of fourth-quarter GDP. The gross output (GO) data will be issued on March 25 (alas, the government is still delaying the release of GO, even though it is the “top line” in national income accounting).
Fourth, business spending is much bigger and growing faster than consumer spending.
By using GO data, we see that consumer spending is only about a third of economic activity, not the 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 U.S. economy.
The third-quarter data supports the optimistic views of Jerry Bowyer Research, who use GO and B2B statistics to make predictions about the financial markets. Bowyer wrote, “The lockdown was focused on sectors which were skewed toward final-stage consumption, such as retail, entertainment and travel. But the business sector is more resilient and is bouncing back.”
Business, not consumption, drives the economy. According to Say’s Law, production on the supply side (entrepreneurship, saving, capital formation, investment and technology) is more important than consumption.
As said by the great Harvard economist Joseph Schumpeter, it is innovation, not consumption, that drives change in the economy. He wrote, “It is the producer who as a rule initiates economic change… Therefore, while it is permissible and even necessary to consider consumers’ wants as an independent and indeed the fundamental force in a theory of the circular flow, we must take a different attitude as soon as we analyze change.”
Georgia On My Mind
The outcome of the two senate races in Georgia on Jan. 5 are paramount to the bull market extending itself into 2021. If the Democrats win, all bets are off. If the Republicans win, gridlock on Capitol Hill will mean that the government will “do no harm” for the next two years.
I received an update from Ralph Reed, who is leading the Republicans in Georgia to keep the Democrats from one-party rule for the next two years. Ralph is the former chairman of the Republican Party in Georgia, and founder of the Christian Coalition.
Both parties are looking to outspend each other to win the two Senate seats. Election bettors still have 70% odds in favor of the Republicans on Jan. 5, but Reed thinks the race is extremely close for both seats and is pulling out all the stops to win.
Look What Santa Claus is Reading on Christmas Eve!
From the picture below, Santa Claus took some time off his route to read a copy of my newly released 10th-anniversary edition of “The Maxims of Wall Street.”
St. Nicholas is delivering hundreds of copies of the Maxims to subscribers, all autographed and numbered.
I am still taking orders — I mail daily. Go to www.skousenbooks.com. The price is only $20 for the first book, with all additional copies just $10 each. If you buy an entire box of 32 books, you pay only $300.
Dick Rowland, RIP
In other news, my old friend Dick Rowland, founder of the Grassroot Institute of Hawaii, died last week at the age of 90. He started the Grassroot Institute at age 71. You’re never too old to make a difference. He was a regular at FreedomFest.
Please watch this four-minute video tribute to Dick Rowland.
In this short video, Dick explains why he called his think tank the “Grassroot” Institute — the word is singular to emphasize the individual. He has some simple but profound expressions about the role of government. I especially like his comments on the left-right labels that continue to divide our nation. Like me, he rejects the left-right political spectrum, and favors an “up” and “down” approach. As Ronald Reagan stated, “There is no left or right, only up or down.”
Dick Rowland said it best, “When the government gets bigger, the individual gets smaller.” We should support more power to individual choice and less to the State. This is an especially valuable lesson in 2020, as government has grown dramatically, and the individual has shrunk.
Two Films Will Lift Your Spirits During the Holidays
Finally, my wife Jo Ann has written a wonderful review of two classic films you probably haven’t heard of: “My Man Godfrey” and “The Inside Story.” I watched both recently. They are highly recommended if you have some free time during the holidays. Read her review here.
Both films are available for free on YouTube. I am planning to show both films to my Chapman University students.
May you have a wonderful Merry Christmas!
You Nailed it! The Political Science of the Coronavirus Scare: Who Got it Right?
It is unfortunate that politics has entered the realm of science when it comes to the coronavirus crisis of 2020.
I have found that experts are divided on this issue — either they are alarmists who look for studies that confirm their bias of an extreme pandemic, or they are skeptics who look for studies that support their view that the pandemic has been overblown and the lockdown excessive.
The best experts should look at both sides of the issues and then try to make an objective judgment.
Rand Paul, who is a medical doctor and a U.S. senator, recently gave a talk before a group of young people at a conference sponsored by Turning Point USA. He has spoken several times at FreedomFest. You can watch the 15-minute speech here, entitled “What If We Were Lied to?” Ignore the partisanship of the audience and just concentrate on what Senator Paul has to say when you click here.
An alternative view can be found in Richard Rahn’s latest column in the Washington Times entitled “2020 has been Horrible, but it Could Have Been Worse.” Read it by clicking here.
At next year’s FreedomFest (July 21-24, 2021) in Rapid City, South Dakota, the ever-popular mock trial will address the pandemic and the response to it. Michael Shermer, publisher of Skeptic magazine, will defend the establishment’s response to the coronavirus. Tom Woods will be the judge, and Dr. Drew Pinsky will be one of the star witnesses. Other participants will be announced soon. See www.freedomfest.com for more details.