US economic growth last quarter is revised up sharply to a 2% annual rate

Washington, June 29 (BNA): The US economy has shown surprising resilience in the face of higher interest rates. The US economy grew at an annual rate of 2% from January to March as consumers spent at the fastest pace in nearly two years.

The Associated Press (AP) reported that Thursday’s revised figure from the Commerce Department sharply raised its assessment of growth in the first quarter from its previous estimate at an annualized rate of 1.3%.

Despite the slight increase, the government’s third and final report on economic growth for the January-March period still marked a slowdown from the 2.6% annual rate from October through December and the 3.2% growth from July through September. The economy has slowed due to the Federal Reserve’s aggressive drive to tame inflation through a series of interest rate increases that began early last year.

Still, Thursday’s report on the country’s gross domestic product — the total output of goods and services — showed why the economy has so far managed to defy predictions of the next recession: Consumers continue to spend despite ever-rising borrowing costs. Their spending, which feeds about 70% of the economy, rose at an annual rate of 4.2% in the January-March quarter, the highest rate since April-June 2021.

The increase in petroleum exports and other exports also contributed to raising the growth estimates during the first quarter. The economy managed to expand at a decent pace despite business inventories shrinking by 2.1 percentage points from the rate of growth in the quarter.

The Fed has raised its benchmark interest rate 10 times since March 2022 in its attack on inflation, which reached a four-decade high of 9.1% last year, but has since slowed to 4%. Higher interest rates by the central bank have led to higher costs for mortgages, auto loans, credit cards, commercial borrowing and widespread expectations that economic downturn is inevitable.

But the economy has proven unexpectedly durable. Retail sales rose last month despite pressure from still-high inflation and rising borrowing costs. Government reports showed recent gains in new home sales and orders for long-term manufactured goods. Employers have added a healthy average of 314,000 jobs a month so far this year, with the unemployment rate, at 3.7%, still near its lowest level in half a century.

In another sign of continued labor market continuity, the Labor Department reported that the number of Americans filing for unemployment benefits last week fell by 26,000 to 239,000.

In the current April-June quarter, the economy is believed to slow down further but still manage to maintain its growth. Economists surveyed by data firm FactSet estimated that annual growth for the quarter would come in at 1%.

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