Despite the big increase, the government’s third and final report on January-March economic growth still marked a deceleration from the 2.6% annual rate from October through December and the 3.2% growth from July through September.
Thursday’s GDP report was the first of three estimates the Commerce Department will make of growth in the January-March quarter. Economists expect growth to further weaken in the current April-June quarter.
The U.S. economy grew at a better-than-expected annual rate from July through September, snapping two straight quarters of economic contraction and overcoming punishingly high inflation and interest rates.
The decline that the Commerce Department reported Thursday in the gross domestic product—the broadest gauge of the economy—followed a 1.6% annual drop from January through March.
While many countries define an economic downturn as two consecutive quarters of negative growth for gross domestic product, the U.S. defers this assessment to elite academics at the National Bureau of Economic Research.
The expectation is that the economy in the current October-December quarter could grow at the strongest pace this year, with some economists forecast GDP could surge to an 8% rate in the fourth quarter.
Growth in the current April-June period is expected to be faster still: Some economists say it could reach a 10% annual pace or more, driven by a surge in people traveling, shopping, dining out and otherwise resuming their spending habits.
Economists had been forecasting a much bigger slowdown with fears that gross domestic product could slump to 1.4% or less given a number of headwinds.
The chief investment strategist for Fifth Third Bank says the economy is in the seventh inning of its recovery, which is "good news." But headwinds in the labor market could be limiting the potential for growth.