Moneybox

What We Actually Learned From Thursday’s Big Economic Report

The economy is more split than ever—between industries that can survive the pandemic, and those that can’t.

Balloons and a sign advertising new homes for sale in front of a suburban development of single-family homes in Novato, California, in September
It’s a hot market. Justin Sullivan/Getty Images

The U.S. economy has officially made up most of the ground it lost thanks to the coronavirus crisis. After collapsing during this spring’s nationwide shutdowns, gross domestic product bounced back by 7.4 percent in the third quarter, the government reported Thursday, as businesses reopened and Americans put down their sourdough starters to venture back out into the world. Growth technically hit a record pace—a 33 percent annualized rate, to be precise—and the country’s economy is now just 3.5 percent smaller than it was at the end of last year (in the spring, it plunged more than 10 percent beneath that level). We’ve gone through a sharp, apocalyptic downturn, followed by a fairly brisk, early recovery.

But, crucially, it has not been an even recovery. Rather, Thursday’s numbers show an economy arguably even more divided than before between industries that can survive and thrive during a pandemic, and those that simply can’t.

The coronavirus collapse was mostly a massive recession in the services sector. Restaurants, bars, and gyms emptied and closed. Airports, hotels, and casinos turned into ghost towns. Hospitals had to halt the pricey elective surgeries that pay their bills in order to care for pandemic victims. But while some retailers, like clothing stores, took a huge hit, consumer spending on goods only dropped modestly overall (and some businesses, like grocery stores, enjoyed a boom of shoppers).

This split between the stuff economy and the services economy has become even sharper during the recovery. The business of selling physical things is thriving, in part because the housing market in most of the country is, to use a technical term, en fuego, which has lifted sales of big-ticket items like appliances and furniture. For this, we can thank the Federal Reserve’s deft moves to lower interest rates. Compared with last summer, spending on all consumer goods was 7 percent higher overall. People bought more trucks (up 11 percent year over year), boats (up 30 percent), bikes (18 percent), computers and tablets (up 26 percent), and games and toys (36 percent) as they adjusted to life in a plague and tried to keep themselves and their families entertained. Though they were still down a bit compared with last year, even clothing sales had a decent comeback, despite the fact that we’re all dressing Zoom-casual these days. Americans spent the summer spending to upgrade their homes, their home lives, and their home wardrobes.

But the services economy is still very much suffering. It has begun recovering from its state of utter decimation last quarter, but is essentially a wreck compared with a year ago. This is especially true in the hospitality and travel industries. Spending on airlines (down 22 percent), restaurants (down 23 percent), bars (down 59 percent), amusement parks (down 67 percent), and movie theaters (down 94 percent) is still in the gutter, to take a few examples.

Consumer spending chart
Jordan Weissmann/Slate

There was one particular bright spot in the service economy: health care. Doctors and hospitals took a huge financial hit early in the coronavirus; spending in the economy’s single largest sector fell about 17 percent in a quarter, as practically the entire U.S. medical system reoriented itself to deal with the pandemic and put profitable procedures on hold. Health care hasn’t recovered entirely, but year-over-year spending has only declined 6 percent. It’s getting back to a semblance of normalcy, with the one major exception being dentist practices; their income is down 18 percent. (Imagine why.)

But some other important parts of the service sector that have nothing to do with eating, drinking, or traveling are hurting too. Take education. While colleges and universities have held up reasonably well, all things considered (spending at them was down just 3.5 percent year over year), vocational schools have seen a 30 percent drop year over year, while spending at day care and nurseries is down 23 percent.

In short, the sectors of the economy that we knew were most susceptible to the virus, and have been responsible for by far the most substantial chunk of job losses, were still very much in a state of depression last quarter.

All of this is cause for concern about the recovery going forward. It’s not clear how much more restaurants, bars, and amusement parks can recover while the virus is still raging. There’s good reason to suspect that some of these industries will slip back deeper into trouble as winter cold keeps people from dining and hanging out outdoors. The big improvements in consumer spending on goods could also turn out to be fragile, as many jobless Americans have spent the last couple of months running down their savings after having their unemployment benefits cut. It doesn’t help matters either that state and local governments are cutting back in the face of a historic fiscal crisis (their spending fell at a more than 3.3 percent annual rate last quarter). And with stimulus talks dead at the moment, it’s unclear when the country can expect another round of federal aid. Parts of the economy are thriving again. But much of it is in danger of being left on ice.