U.S. GDP contracted by 0.9% in the second quarter, far below analyst expectations for a 0.4% gain, driven by decreases in inventory investment, housing and government spending, according to Wednesday's advance estimate by the Bureau of Economic Analysis.
Consumer spending also slowed to 1.0% in the quarter from 1.8% in the first quarter, the lowest since 2Q 2020 early in the pandemic. Services spending, particularly on restaurants and hotels and health care, picked up but was offset by a decrease in spending on goods.
PCE inflation, the Fed's preferred indicator for consumer price trends, rose 7.1% in the second quarter, the same as the first quarter. Core PCE inflation edged down to 4.4% from 5.2% in the first quarter.