With Wall Street expecting the US economy to grow 2.6% in the second quarter, there were many shocked faces moments ago when the Census Bureau reported that not only did the US economy grow a paltry 1.2% in the quarter, but Q1 GDP was slased from an already poor 1.1% to just 0.8%.

A breakdown of the underlying data via Bloomberg:

For the first quarter of 2016, real GDP is now estimated to have increased 0.8 percent; in the previously published estimates, first-quarter GDP was estimated to have increased 1.1 percent. The 0.3-percentage point downward revision to the percent change in first-quarter real GDP primarily reflected downward revisions to residential fixed investment, to private inventory investment, and to exports that were partly offset by upward revisions to nonresidential fixed investment, to PCE, to state and local government spending, to imports, and to federal government spending.

Just as bad, strong historical GDP reports such as the 3.9% alleged growth in Q2 2015 which served as the springboard for the Fed's rate hike rhetoric in mid-2015, was slashed to a far lower 2.6%.

As of this moment, the economy has grown at less than a 2% pace for three straight quarters. Since the recession ended seven years ago, the expansion has failed to achieve the breakout seen in past recoveries. The average annual growth rate during the current business cycle remains the weakest of any expansion since at least 1949.

The reason for the dramatic cuts: historical revisions going back to Q1 2013. From the BEA:

Updated estimates of the national income and product accounts (NIPAs), which are usually made each July, incorporate newly available and more comprehensive source data, as well as improved estimation methodologies. This year, the notable revisions primarily reflect the incorporation of newly available and revised source data. The timespan of the revisions is the first quarter of 2013 through the first quarter of 2016. The reference year remains 2009.

It now appears that at a time when the US economy was said to be approaching escape velocity for a rate hike, it was in fact contracting. According to the latest data, in Q4 when Yellen announced the Fed's first rate hike, the growth trend economy was in fact decelerating, growing by only 0.9%, the lowest since Q1 2014.

Some more details:

Core PCE 1.7%, far below Q1's downward revised 2.1%

GDP deflator: 2.2%, Exp. 1.8%, and up from 0.5%

From the BEA:

Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent (revised). The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE) and exports that were partly offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased. The acceleration in real GDP growth in the second quarter reflected an acceleration in PCE, an upturn in exports, and smaller decreases in nonresidential fixed investment and in federal government spending. These were partly offset by a larger decrease in private inventory investment, and downturns in residential fixed investment and in state and local government spending.

There was some good news in the report: In the second quarter, consumer spending rose strongly. Personal consumption, which accounts for more than two-thirds of economic output, expanded at a 4.2% rate, the best gain since late 2014. Outlays on goods advanced 6.8%. Spending on services climbed 3%. As part of the revision, a major adjustment was the contribution from Housing and utilities, which in Q2 supposedly added $43 billion to Personal Consumption, while Healthcare, traditionally the best performing category, only added $28.4 bilion. We are confident this number will be revised shortly again.

However, nonresidential fixed investment, a measure of business spending, declined at a 2.2% pace, the third straight quarterly drop. Companies spent less on buildings and equipment.

It appears capex matters.

Weak business investment is confirmation that firms don’t have confidence in the global economy. Manufacturers especially have been challenged by a strong dollar, which makes U.S.-made goods more expensive overseas. The energy industry has also been constrained with relatively low oil and natural gas prices curtailing investments in mining and wells.

Firms also paired back inventories sharply. The change in private inventories subtracted 1.16 percentage points from overall growth. That was the category’s fifth-straight decline and the largest drag from inventories in two years.

We will breakdown the revised numbers shortly, but with this latest data in the Fed's hands it looks like any rate hike hopes for September, or any time soon for that matter, were just crushed.