First-quarter economic growth was revised to 2%, up from the initially reported 1.3%

The Commerce Department reported a significant upward revision on Thursday, revealing that the U.S. economy experienced much stronger-than-expected growth in the first quarter.

The final estimate for the first-quarter Gross Domestic Product (GDP) reveals a 2% annualized growth rate, surpassing the previous estimate of 1.3% and exceeding the Dow Jones consensus forecast of 1.4%. This marks an improvement from the 2.6% growth rate in the fourth quarter.

The upward revision in the GDP helps dispel concerns of an impending recession in the United States. Additionally, a separate economic report released on Thursday revealed that layoffs were lower than expected, indicating the resilience of the labor market despite the Federal Reserve’s 10 interest rate hikes amounting to 5 percentage points.

The revision in GDP can be attributed largely to stronger consumer expenditures and exports, as stated in a summary by the Bureau of Economic Analysis.

Personal consumption expenditures, a measure of consumer spending, increased by 4.2%, marking the highest quarterly growth rate since Q2 2021. Additionally, exports rebounded strongly, rising by 7.8% following a 3.7% decline in Q4 2022.

Consumer spending numbers were likely boosted by an 8.7% increase in the Social Security cost-of-living adjustment, according to Scott Hoyt, senior director at Moody’s Analytics.

“However, the economy overall remains admirably resilient, and the likelihood of a recession starting this year is diminishing. Nevertheless, there are still uncertainties ahead,” he stated.

On the inflation front, there was also positive news. Core PCE prices, excluding food and energy, increased by 4.9% during the period, with a downward revision of 0.1 percentage point. The overall price index saw an increase of 3.8%, remaining unchanged from the previous estimate.

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Core PCE is closely monitored by Federal Reserve policymakers as an inflation indicator. The Fed is implementing a series of rate increases to bring inflation back down to the target rate of 2%.

The rate hikes aim to moderate an economy that experienced inflation at its highest level since the early 1980s during the summer of 2022.

The labor market has been a particular area of focus for the Fed. With approximately 1.7 job openings per available worker, the tightness in the market has led to upward pressure on wages, which have generally not kept up with inflation.

“While the current forecast suggests that the economy will likely avoid a recession, the risks remain significantly elevated. The economy is vulnerable, and even minor factors could potentially trigger a recession,” stated Hoyt.

According to a Labor Department report released on Thursday, initial jobless claims dropped to 239,000 for the week ending June 24. This marked a decrease of 26,000 from the previous week and was significantly lower than the estimated 264,000.

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