The U.S. economy showed much more substantial than expected 2% growth in the first quarter, according to an extensive 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 approaching a recession.
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 more substantial 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.
And while we still don’t have a clear trend, it is fairly safe to assume that consumer spending is going to keep on growing, in many cases boosted by e-commerce as it has been the trend in the past year.
In fact, even in the early months of 2022, amid record inflation, a McKinsey report showed that US consumers continued to open their wallets. US inflation grew to nearly 8.5 percent in March 2022, with the May 2021 to March 2022 period showing the highest inflation in a decade.
US consumers spent 18 percent more in March 2022 than they did two years earlier and 12 percent more than they were forecast to spend based on the pre-COVID-19 trajectory.
Core PCE prices, which exclude food and energy, rose 4.9% in the period, a downward revision of 0.1 percentage point. The all-time price index increased 3.8%, unchanged from the last estimate.
Federal Reserve policymakers most closely watched 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 need to catch up with inflation.
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 of 264,000.
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