Government consumption and investment

From 2020 to 2025, government consumption and investment increased steadily, shaped by responses to the pandemic and ongoing policy initiatives across multiple levels of government. In 2020, total public sector expenditure stood at $3.72 trillion, as government response to COVID-19 included direct spending on health systems, emergency relief, and economic stimulus programs that stabilized households and businesses. Federal programs such as the CARES Act, expanded unemployment insurance, and healthcare funding drove a surge in outlays, while state and local governments faced budget pressures from declining tax revenues even as they expanded emergency services.

The end of acute pandemic spending and the normalization of fiscal operations led to a small contraction of 0.1% in 2021 ($3.72 trillion) and an additional 1.2% reduction in 2022 ($3.67 trillion) as emergency programs wound down and the focus shifted to longer-term priorities. Federal discretionary spending moderated as vaccine distribution concluded and direct payments ended, though defense spending remained elevated due to geopolitical tensions and ongoing modernization programs. State and local governments gradually restored normal operations but faced constraints from inflation, labor shortages in public employment, and competing budget demands.

Beginning in 2023, government spending returned to growth, increasing 3.5% to $3.80 trillion. This period saw renewed investment in transportation infrastructure, climate adaptation projects, technology upgrades for digital government services, public safety initiatives, and support for recovering public education systems. Major infrastructure legislation enacted in prior years began to translate into actual construction and investment activity, with transportation networks, water systems, and broadband expansion receiving significant allocations. The upward trajectory was maintained in 2024 with a 3.8% rise to $3.95 trillion and a further 1.4% increase in 2025 to $4.00 trillion. Across the five-year window, government consumption and investment increased by $0.28 trillion, or 7.4%, marking a compound annual growth rate of 1.4%.

Key drivers for public investment were infrastructure modernization efforts, health care expansion to address aging demographics, resilience against climate events such as floods and wildfires, and targeted support for vulnerable populations including veterans and low-income families. The level of expenditure in 2025 exceeds the post-Great Recession peak of $3.54 trillion (2009), confirming a secular upward trend interrupted only by brief austerity periods between 2011 and 2013 when sequestration and budget caps constrained federal discretionary spending. Government agencies adapted to ongoing macroeconomic shocks and responded to shifting priorities in national defense, cybersecurity, technology infrastructure, and human capital development across education and workforce programs.