Tuesday, December 11, 2012

GDP Breakdown: Government Consumption Expenditures and Gross Investment

Continuing my breakdown of the various main GDP components, next up is government expenditures and investment (GCE).  It is the second largest component of GDP.  It is defined as follow (bolding mine).
Government consumption expenditures and gross investment (1–29), the measure of government sector final demand, consists of two major components: Current consumption expenditures by general government and gross investment by both general government and government enterprises...government consumption expenditures is measured as the sum of these costs of production less sales by government of goods and services to other sectors (which are classified as PCE, if purchased by individuals, or as intermediate inputs, if purchased by businesses) and the value of software and construction that are produced by government for its own use (that is, own-account investment, which is classified as part of gross government investment). Gross investment consists of purchases of new structures and of equipment and software by both general government and government enterprises, net purchases of used structures and equipment, and own-account production of structures and of software. Government consumption expenditures and gross investment does not include current transactions of government enterprises, current transfer payments, interest payments, subsidies, or transactions in financial assets and in nonproduced assets such as land.
For the sake of this post I will breakdown GCE into federal and state and local.  The federal component can be further broken into defense and nondefense.  This is in other words (my words), is a way of looking at the cost of operations type of spending - which is why transfer payments, interest payments and such are not included.
GDP by component share.  Government consumption and investment (purple). 
GCE by total value: federal (FGCE) and state and local (SLCE).  If you have trouble seeing FGCE is the darker shade of purple.
GCE by percent share of each component.  State and local consumption expenditures are larger than federal.  GCE/GDP is on the right-hand side.
Federal consumption is less than state, but much of the federal government's budget is transfer payments in the form of social welfare programs.  Most of what the federal government consumes and invests is defense related.

Defense (FDEFX) and nondefense (FNDEFX) federal consumption (FGCE).  FGCE has declined from over 55% of GCE to 40% since 1960.
A view of FGCE components as a percent of FGCE.  FGCE/GCE is on the right-hand side.
 Relative to GDP, the government consumption has decreased while relative to federal government consumption defense spending has decreased.  Here are the ten year charts.
FGCE broken down along with SLCE.
GCE/GDP rose from 19% pre-recession to 22% peak recession; meanwhile federal grew relatively larger than state and local consumption.

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