Government Purchases of Goods and Services

The U.S. economy is...big. Like...18 trillion dollars big. A lot of Big Macs, Disney plushies from Amazon and Netflix subscriptions. Who's buying all that stuff? Well, all of us of course.

But the biggest single customer?

You can probably guess where we're going, but we'll get back to it in a second. First, a couple basics so you know what we're talking about.

The U.S. economy is measured in GDP, an acronym for Gross Domestic product. Ever seen a baby being born? That's a pretty gross domestic product. But...not what we're referring to here. The GDP we're talking about measures all the stuff produced in a country. All the products made and all the services rendered. It's the grand accounting of what every American does at work every day.

But who's buying all that stuff we make? On the other end of the GDP number are people paying money for all those Big Macs and Disney plushies and subscriptions to Netflix.

Now, back to the original question: who's the biggest single customer for all this stuff? No, not your hoarder Aunt Millie. It’s the federal government.

Collectively, the biggest customer is all of us. Each one of us buying Starbucks fraps on the way home from work and ordering Captain America t-shirts at 3 am. And Aunt Millie subscribing to 45 different magazines that she actually has physically delivered to her house. That's called consumer spending. It makes up the biggest part of U.S. GDP.

Consumer spending makes up about 2/3 of the economy. It represented about $12.8 trillion of the $18.6 trillion of total GDP in 2016. But none of us individually make a big dent on our own. It takes a village to buy all that stuff.

The other third of the economy is split pretty evenly between government and business spending. In fact, government has the slight edge, representing $3.3 trillion of GDP in 2016. By comparison, businesses spent just under $3.1 trillion. So governments in general fueled about a sixth of total purchases in the economy. That counts all levels of government: federal, state, and local.

So that’s government spending on goods and services. It's an economic statistic that tracks the government contribution to Gross Domestic Product. Think of GDP as a simple equation. It consists of consumer spending + business spending + government spending + net exports...net exports representing the amount of U.S. goods and services bought by people overseas (minus the foreign stuff we buy from them).

There are some things to keep in mind about the government spending we're talking about here. There are a few big chunks of government budgets that don't fit into the equation. For instance, this kind of government spending doesn't count interest payments on the debt. Those debt service payments equate to about 6% of the federal budget. It also doesn't count what are called transfer payments. This category includes things like social security payments where the government just sends someone a check...where money is simply transferred from the government's bank account to someone else's.

The figure is only looking at situations where the government directly buys a good or a service, meaning the government's contribution to GDP. If the figure included Social Security payments, then the amount would get counted twice. Once when the government sent the money, and a second time when the person went out and bought something. To avoid that, transfer payments are left out of the figure.