The U.S. economy showed much stronger-than-expected growth in the first quarter than previously thought, according to a big upward revision Thursday from the Commerce Department.
Gross domestic product increased at a 2% annualized pace for the January-through-March period, up from the previous estimate of 1.3% and ahead of the 1.4% Dow Jones consensus forecast. This was the third and final estimate for Q1 GDP. The growth rate was 2.6% in the fourth quarter.
The upward revision helps undercut widespread expectations that the U.S. is heading toward a recession. A separate economic report released Thursday showed layoffs running well below expectations, indicating that labor market strength has held up even in the face of the Federal Reserve’s 10 interest rate hikes totaling 5 percentage points.
According to a summary from the department’s Bureau of Economic Analysis, the change came in large part because both consumer expenditures and exports were stronger than previously thought.
Consumer spending, as gauged by personal consumption expenditures, rose 4.2%, the highest quarterly pace since the second quarter of 2021. At the same time, exports rose 7.8% after falling 3.7% in the fourth quarter of 2022.
An 8.7% boost in the Social Security cost-of-living adjustment likely boosted the consumer spending numbers, said Scott Hoyt, senior director at Moody’s Analytics.
“Overall, however, the economy remains admirably resilient, and odds of a recession beginning this year are receding. But the coast is far from clear,” he said.
There also was some good news on the inflation front.
Core PCE prices, which exclude food and energy, rose 4.9% in the period, a downward revision of 0.1 percentage point. The all-times price index increased 3.8%, unchanged from the last estimate.
Federal Reserve policymakers most closely watch core PCE as an inflation indicator. Through a series of rate increases, the Fed is trying to get inflation back down to 2%.
The rate hikes are targeted at slowing down an economy that in the summer of 2022 was generating inflation at the highest level since the early 1980s.
One specific focus for the Fed has been the labor market. There currently are about 1.7 open positions for every available worker, and the tightness has resulted in a push higher for wages which generally have not kept pace with inflation.
“Obviously, while the baseline forecast calls for the economy to skirt recession, risks are extremely high. It would take little to push the economy into recession,” Hoyt said.
A separate report Thursday from the Labor Department pointed showed that initial jobless claims fell to 239,000 for the week ended June 24. That was a decline of 26,000 from the previous week and well below the estimate for 264,000.