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

Showing surprising resilience in the face of higher interest rates, the U.S. economy grew at a 2 per cent annual pace from January through March as consumers spent at the fastest pace in nearly two years. Thursday’s revised figure from the Commerce Department sharply upgraded its assessment of first-quarter growth from its previous estimate of a 1.3 per cent annual rate. Despite the uptick, the government’s third and final report on January-March economic growth still marked a deceleration from the 2.6 per cent annual rate from October through December and the 3.2 per cent growth from July through September. The Federal Reserve’s aggressive drive to tame inflation has slowed the economy through a series of interest rate hikes beginning early last year.

A surge in petroleum and other exports also contributed to the upgraded growth estimate during the first quarter. The economy managed to expand at a decent pace even though a cutback in business inventories shaved 2.1 percentage points off the quarter’s growth rate. The Fed has raised its benchmark interest rate 10 times since March 2022 in its attack on inflation, which hit a four-decade high of 9.1 per cent last year but has since slowed to 4 per cent. The central bank’s rate hikes have led to higher costs for mortgages, auto loans, credit cards and business borrowing and widespread predictions that an economic downturn is inevitable.

But the economy has proved unexpectedly durable. Retail sales rose last month despite pressure from still-high inflation and rising borrowing costs. Government reports have shown recent gains in new-home sales and orders for long-lasting manufactured goods. And employers have added a healthy average of 314,000 jobs a month so far this year, with the unemployment rate, at 3.7 per cent, still close to a half-century low.

In another sign of the job market’s continuing durability, the Labor Department reported that the number of Americans applying for unemployment benefits fell last week by 26,000 to 239,000. In the current April-June quarter, the economy is believed to be slowing further but still managing to maintain its growth. Economists surveyed by the data firm FactSet have estimated that annual growth for the quarter will amount to 1 per cent.

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