The U.S. economy grew faster than expected in the second quarter as labor market resilience underpinned consumer spending, while businesses boosted investment in equipment, potentially keeping a much-feared recession at bay.

Gross domestic product increased at a 2.4% annualized rate last quarter, the Commerce Department in its advance estimate of second-quarter GDP on Thursday. The economy grew at a 2.0% pace in the January-March quarter. Economists polled by Reuters had forecast GDP rising at a 1.8% rate.

Outside the housing market and manufacturing, the economy has largely weathered the 525 basis points in interest rate hikes from the Federal Reserve since March 2022 as the U.S. central bank battled inflation.

Economists have since late 2022 been forecasting a downturn, but with price pressures retreating, some now believe that the soft-landing scenario for the economy envisaged by the Fed is feasible. The central bank on Wednesday raised its policy rate by 25 basis points to a 5.25%-5.50% range.

The economy is being anchored by the labor market, whose continued tightness was underscored by a separate report from the Labor Department on Thursday showing initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 221,000 for the week ended July 22.

Companies are hoarding workers after struggling to find labor during the COVID-19 pandemic. Employment in the leisure and hospitality sector remains below pre-pandemic levels.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, dropped 59,000 to 1.690 million during the week ending July 15. Despite high profile layoffs in technology and finance sectors in 2022 and early this year, the so-called continuing claims remain low by historical standards.

This suggests that some laid off workers are quickly finding employment. The continuing claims data covered the week that the government surveyed households for July's unemployment rate. Continuing claims fell between the June and July survey periods.

At 3.6% in June, the jobless rate was not too far from multi-decade lows.

But some economists remain convinced that a recession is on the horizon, arguing that higher borrowing costs will eventually make it harder for consumers to fund their spending with debt.

They also noted that banks were tightening credit and excess savings accumulated during the pandemic continued to be run down. Slowing job growth was seen curbing wage gains.