The numbers: The U.S. economy was supposed to slow down sharply this year because of higher interest rates, but it grew at a solid 2% annual pace in the first quarter, updated figures show, and the economy still appears to be expanding.
Gross domestic product was revised up from a previously reported 1.3% growth rate, the government said Thursday. GDP is the official scorecard of the economy.
The U.S. is also expected to expand between 1% to 2% in the second quarter that ends on Friday, based on the most recent Wall Street forecasts.
Key details: The increase in GDP in the first quarter was led by strong consumer spending, the main engine of the economy.
Consumer spending rose 4.2% from a prior 3.8% annual clip, explaining most of the upward increase in GDP. It was the biggest gain in two years.
Rising wages and the biggest increase in Social Security benefits in years — a result of high inflation — helped to pad spending.
Auto sales were particularly strong. Consumers are more likely to buy new cars when they are confident in the economy.
Exports were a bit stronger than previously reported and business investment in large structures such as oil rigs or warehouses was quite strong, up 16%.
More companies might be spending money on new plants in the U.S. in response to semiconductor and green-energy incentives offered by the Biden administration.
Most other figures in the report were little changed. GDP is updated twice after the initial results are published to incorporate new information not immediately available.
Big picture: The economy has proven surprisingly resilient even as the Federal Reserve jacks up interest rates to slow down growth and tame inflation. The Fed itself recently raised its GDP forecast for 2023 to 1.1% from 0.4%.
Yet stronger growth could keep inflation elevated and force the Fed to raise rates even higher, boosting the odds of a recession in the next year. Higher borrowing costs depress the economy.
Looking ahead: “The economy remains admirably resilient, and odds of a recession beginning this year are receding. But the coast is far from clear,” said Scott Hoyt, senior director at Moody’s Analytics.
“Recession risks will remain uncomfortably high well into next year given the Federal Reserve’s unprecedented interest rate hikes to rein in inflation,” he said.