Consumer spending, which accounts for over over two-thirds of U.S. economic activity, fell at a 1.2 percent rate in the second quarter after rising 0.6 percent in the previous quarter.
That sliced 0.88 percentage points from second quarter GDP, the department said.
In contrast to the weak consumer reading, business investment improved significantly in the second quarter. The advance report showed business investment decreased at an 8.9 percent rate in the second quarter after diving 39.2 percent in the previous quarter.
Investment in nonresidential structures fell at an 8.9 percent rate compared to a 43.6 percent drop in the first quarter.
Residential investment, which is at the core of the longest recession since the Great Depression, dropped at a 29.3 percent rate in the April-June period after plummeting by 38.2 percent in the first quarter.
"This report has written all over it the continued divergence between consumers and businesses," said Ashraf Laidi, chief market strategist at CMC Markets in London.
The drop in consumer spending raises concerns. It indicates the recent decline in consumer sentiment is seeping through to spending activity.
However, the drop in the decline in investment is good news. It indicates that business -- while cautious -- is feeling a bit better.