A new US economic statistic, gross output, usefully focuses on what's being made, not on consumption. The measure underlines how suddenly economic activity plunged from 2008 to 2009, and suggests monetary stimulus worked better than the fiscal response which was too little, too late.
Gross output sums up the sales from all stages of production, resulting in the double-counting of intermediate stages. At an annualised $30.1 trillion in the fourth quarter of 2013, it's nearly double the GDP figure of $17.1 tn. Yet by focusing on production rather than consumption it gives a supply-side picture that isn't otherwise available. The narrative of the 2008 downturn is also a bit different when gross output is considered. Real GDP declined in the first quarter of 2008, while gross output continued to increase in the first two quarters of the year. It then declined modestly in the third quarter, before plunging by 5.5 per cent in the fourth quarter and a further 4.7 per cent in the first three months of 2009 - and those are quarter-to-quarter changes, not annual ones. Mining, some manufacturing and wholesale businesses were hit especially hard, while construction continued declining into 2010.
Direct federal spending is less than four per cent of gross output and changes by no more than a few percent from quarter to quarter. The new data from the Bureau of Economic Analysis show Washington's outlays increasing in the first through third quarters of 2008, then remaining flat before increasing again modestly from the second quarter of 2009. Thus the federal stimulus, such as it was, came before and after the worst of the downturn, but not during it. Fiscal stimulus is hard to time right, and anything large enough would require huge and potentially debilitating borrowing.
Conversely, since the onset of the gross output recession coincided with the September 2008 peak of the financial crisis, Ben Bernanke's energetic money-printing at the Fed was well timed and may have helped shorten the downturn, with recovery in gross output starting within six months. That doesn't mean the Fed's continued generosity and low rates are justified, though. In fact, steady growth in gross output since the third quarter of 2009 suggests that a short burst of monetary easing might have done the job - and avoided subsequent distortions.
Gross output sums up the sales from all stages of production, resulting in the double-counting of intermediate stages. At an annualised $30.1 trillion in the fourth quarter of 2013, it's nearly double the GDP figure of $17.1 tn. Yet by focusing on production rather than consumption it gives a supply-side picture that isn't otherwise available. The narrative of the 2008 downturn is also a bit different when gross output is considered. Real GDP declined in the first quarter of 2008, while gross output continued to increase in the first two quarters of the year. It then declined modestly in the third quarter, before plunging by 5.5 per cent in the fourth quarter and a further 4.7 per cent in the first three months of 2009 - and those are quarter-to-quarter changes, not annual ones. Mining, some manufacturing and wholesale businesses were hit especially hard, while construction continued declining into 2010.
Direct federal spending is less than four per cent of gross output and changes by no more than a few percent from quarter to quarter. The new data from the Bureau of Economic Analysis show Washington's outlays increasing in the first through third quarters of 2008, then remaining flat before increasing again modestly from the second quarter of 2009. Thus the federal stimulus, such as it was, came before and after the worst of the downturn, but not during it. Fiscal stimulus is hard to time right, and anything large enough would require huge and potentially debilitating borrowing.
Conversely, since the onset of the gross output recession coincided with the September 2008 peak of the financial crisis, Ben Bernanke's energetic money-printing at the Fed was well timed and may have helped shorten the downturn, with recovery in gross output starting within six months. That doesn't mean the Fed's continued generosity and low rates are justified, though. In fact, steady growth in gross output since the third quarter of 2009 suggests that a short burst of monetary easing might have done the job - and avoided subsequent distortions.