Financial progress within the first quarter was really 2%, in comparison with 1.3% first reported within the main GDP revision

The US economy posted much stronger-than-expected growth in the first quarter than previously thought, according to a major upward revision from the Commerce Department on Thursday.

Gross domestic product rose 2% on an annualized basis in the January-March period, ahead of the previous estimate of 1.3% and ahead of the Dow Jones consensus forecast of 1.4%. This was the third and final estimate for Q1 GDP. The growth rate was 2.6% in the fourth quarter.

The upward revision is helping to defuse widespread expectations that the US is headed for recession. A separate economic report released on Thursday showed layoffs fell well short of expectations, suggesting job strength is holding up despite the Federal Reserve’s 10 cumulative rate hikes of five percentage points.

According to a summary by the department’s Bureau of Economic Analysis, the change came in large part because both consumer spending and exports were stronger than previously thought.

Consumer spending, as measured by personal consumption spending, rose 4.2%, the fastest quarterly growth since the second quarter of 2021. At the same time, exports rose 7.8% after falling 3.7% in the fourth quarter of 2022.

An 8.7% increase in the cost of living from Social Security is likely to have boosted consumer spending, said Scott Hoyt, a senior director at Moody’s Analytics.

“Overall, however, the economy remains admirably resilient and the likelihood of a recession beginning this year is diminishing. But the situation is far from clear,” he said.

There was also some good news on the inflation front.

Core PCE prices, which exclude food and energy, rose 4.9% over the period, a downward revision of 0.1 percentage point. The all-time price index rose by 3.8%, unchanged from the last estimate.

Federal Reserve policymakers watch the core PCE most closely as an indicator of inflation. The Fed is attempting to bring inflation back to 2% through a series of rate hikes.

The rate hikes aim to slow an economy that in the summer of 2022 produced inflation at its highest level since the early 1980s.

A particular focus of the Fed was on the labor market. There are currently about 1.7 vacancies for every available worker and the shortage has led to increases in wages that have generally not kept pace with inflation.

“Although the baseline forecast assumes that the economy will bypass the recession, the risks are obviously extremely high. It would take little to push the economy into recession,” Hoyt said.

A separate Labor Department report on Thursday showed initial jobless claims fell to 239,000 in the week ended June 24. That was down 26,000 from the previous week and well below the estimate of 264,000.