It is interesting that PGL has posted a figure showing government purchases and how they have been gradually declining recently. The recent report of GDP surprisingly declining in fourth quarter 2012 and the role of government spending in that brings this up. What may be a problem here is that the public reports did not make this distinction, reporting on declines in "government spending," when in fact what is involved here has been a decline in government purchases. The crucial issue here is that changes in transfer payments do not directly affect GDP, but changes in government purchases do, and it was purchases, mostly through defense spending, that declined.
Some readers may say, "What is the problem here?" The problem is that a new right wing meme has erupted over whether or not "government spending" has declined. Indeed, it did not do so during the 4th quarter 2012, at least not federal government spending. Much as I dislike this source, one can see the numbers taken from US Treasury stats at http://www.breitbart.com/Big-Government/2013/01/30/Fact-Check-Federal-Spending-Increased-in-4th-Quarter .
Furthermore, Barron's has gotten all huffy about how the Bureau of Economic Analysis reported the decline in defense spending, which indeed was mostly a decline in purchases leading to a decline in GDP. They complain that the 22% reported number for the quarterly decline was an annualized number, and that the actual decline was only 5.32%. This is accurate, but indeed, that decline in purchases by the DOD happened and was unexpected (although following a sharp increase in the 3rd quarter, thought by many to be a forwarding of spending in anticipation of the fiscal cliff/sequester/etc.) and played a major role in the reported GDP quarterly decline.
In any case, the increase in federal spending noted by Breitbart was due to an increase in transfer payments that did not lead to an increase in GDP. As it is, people should be warned that this meme is now out there. I became aware of it when I saw the editorial page lead editorial in my very conservative hometown Harrisonburg (VA) Daily News-Record, which was going on about the government lying and Obama lying and so on and so forth, all on the basis of this report that in fact government spending had gone up rather than gone down as the media so widely reported. It would have been helpful if the original reports on this had been a bit clearer, although I suspect that much of the public is simply unaware of the distinction here or its importance.
Meanwhile, everyone should keep in mind that the much bigger story here has been the ongoing decline in state and local government spending and purchases, with a far larger proportion of their spending being in fact purchases. Their employment is also much higher than that of the federal government, just over 19 million in comparison with about 4.4 million for the federal government, the latter peaking in recent decades at about 5.3 million in 1987 and reaching a recent minimum in 2000 of about 4.1 million. Since peaking in August 2008, government employment has fallen more than 700,000, with the overwhelming majority of that being in the state and local sector, with that decline still occurring in the last job report, where the gain of 157,000 jobs was after a 9000 jobs loss in the government sector, again, mostly state and local. Federal employment has not changed much in this whole period, increasing some in 2009 and slightly decreasing since, although that could change if there continue to be substantial declines of federal government purchases.