The sluggish rebound for services

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.”