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Data: U.S. Department of Commerce; Chart: Axios Visuals

The coronavirus recession is technically over, but the GDP report makes clear the most important part of the U.S. economy — the services sector — is still mired in a severe downturn.

Why it matters: It makes up a whopping 70% of the U.S. economy. The services sector is also comprised of what has become undesirable in the wake of the pandemic, including eating in restaurants and traveling.

  • On the flip side, the level of spending on stuff (cars, clothing, footwear, etc.) hit the highest level on record.

By the numbers: Spending on services rose in the third quarter compared to the last. But it's still 7.2% below where it was in Q3 last year.

  • Meantime, spending on goods has made a full recovery — and then some. It's almost 7% higher than the same quarter one year ago.

The state of play: There has been "some substitution away from services toward goods," Nathan Sheets, chief economist at PGIM Fixed Income, tells Axios.

  • What that looks like: "Some families canceled summer travel and instead spent the money on goods, including home improvements or furnishings."

The bottom line: The U.S. economy has plenty of ground to make up to get back to pre-pandemic levels. But a continued drag on the services sector — which is at risk of getting worse with a resurgence of the pandemic — makes a full recovery that much harder.

Here's how KPMG chief economist Constance Hunter put it to the Washington Post:

  • “If we don’t get a handle on the pandemic, services consumption is not going to rebound. And if services consumption isn’t going to rebound, we’re not going to see employment rebound, and that’s going to have spillover effects over the whole recovery.”

Go deeper

Jan 25, 2021 - Axios Twin Cities

Food delivery demand soared in the Twin Cities in 2020

Data: Second Measure; Chart: Axios Visuals

Local spending on food delivery spiked in 2020 compared with 2018 sales, according to consumer data analytics company Second Measure.

Behind the numbers: Delivery and takeout have been a lifeline for restaurants during pandemic closures, but complaints about the cost of using the popular services have prompted Minneapolis, St. Paul and Edina to temporarily cap the fees apps charge restaurants.

Ina Fried, author of Login
Jan 25, 2021 - Technology

Average U.S. iPhone price hits a record $873

Photo: James D. Morgan/Getty Images

Spurred by big demand for top-of-the-line iPhones, the average selling price in the U.S. hit $873 last quarter, up from $809 a year ago, according to a report from Chicago-based Consumer Intelligence Research Partners.

Why it matters: Apple still makes a huge chunk of its revenue and profits from iPhone sales, though services are an increasing source of both as well.

10 mins ago - World

Report: U.S. calls for UN-led Afghan peace talks

Secretary of State Antony Blinken at the State Department in Washington, D.C., in February. Photo: Jim Lo Scalzo/EPA/Bloomberg via Getty Images

Secretary of State Antony Blinken proposed in a letter to President Ashraf Ghani steps including a UN-facilitated summit to revive stalled peace talks between the Afghan government and the Taliban, Afghanistan's TOLOnews first reported Sunday.

Why it matters: Blinken expresses concern in the letter, also obtained by Western news outlets, of a potential "spring offensive by the Taliban" and that the security situation may worsen and the Taliban "could make rapid territorial gain" after an American military withdrawal, even with the continuation of U.S. financial aid.