Government consumption and investment

Government consumption and investment are on a steady but moderating upswing in 2026, with outlays projected to rise 1.5% to $4.05 trillion as emergency-era volatility gives way to more routine budget execution and targeted program spending. Core drivers now include embedded infrastructure programs, elevated defense and security commitments and ongoing support for health, education and social services, even as headline growth cools from the post-pandemic rebound. Inflation, higher interest costs and tighter fiscal scrutiny are restraining the pace of new discretionary initiatives, but governments continue to prioritize resilience, digital service delivery and workforce-intensive public services.

Between 2021 and 2026, performance has pivoted from pandemic withdrawal to infrastructure- and resilience-led expansion. Spending dipped by 0.1% in 2021 and 1.2% in 2022 as large federal relief packages, expanded unemployment insurance and emergency health funding rolled off, while state and local governments struggled with lagging revenues, rising wage demands and service backlogs.

From 2023 onward, major federal infrastructure laws translated into on-the-ground projects in transport, water, broadband and climate adaptation, lifting investment and supporting 3.5% and 3.8% in 2023 and 2024, respectively. Defense modernization, cybersecurity and border security kept federal spending elevated, while state and local budgets leaned into K-12 remediation, higher education stabilization, public safety and reopening-related staffing. At the same time, governments faced persistent headwinds from public-sector labor shortages, construction bottlenecks and higher materials costs, which slowed project execution and tempered the potential upside from legislated spending pipelines. Demographic pressures from an aging population and a growing need for behavioral health and social services also pushed operating expenditures higher, reinforcing the shift toward health and human services as structural anchors of government demand.