WASHINGTON (AP) 鈥 Showing surprising resilience in the face of higher interest rates, the U.S. economy grew at a 2% 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% annual rate.
Despite the uptick, the government's third and final report on January-March economic growth still marked a deceleration from the and the . The economy has been slowed by the Federal Reserve's aggressive drive to tame inflation through a series of interest rate hikes beginning early last year.
Yet Thursday's report on the nation's gross domestic product 鈥 the total output of goods and services 鈥 showed why the economy has so far managed to defy : Consumers continue to spend despite ever-rising borrowing costs. Their spending, which fuels about 70% of the economy, rose at a 4.2% annual rate in the January-March quarter, the most since April-June 2021.
A surge in petroleum and other exports also contributed to the upgraded estimate of growth 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 since March 2022 in its attack on inflation, which hit last year but has since . The central bank鈥檚 rate hikes have led to higher costs for mortgages, auto loans, credit cards and business borrowing and widespread is inevitable.
But the economy has proved unexpectedly durable. 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 month so far this year, with , 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 .
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%.
鈥淲hile the economy has outperformed expectations, our base case is that the lagged and cumulative effects of restrictive (interest rates) will slow the pace of activity going forward,鈥 Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a research note.
