Economists expect growth to rebound to more than 3% in the third quarter, with a healthy labor market supporting consumer spending.
The July report also shows a 1.6% increase in core capital goods orders, fueling hopes of a pickup in business investment.
The agency is projecting lower-than-expected tax revenue, with most of the drag coming from falling corporate profits.
The U.S. housing market continues to be a bright spot for the economy amid historically low mortgage interest rates.
The 0.4% decline suggests inflationary pressures remain muted, possibly dampening prospects for an interest rate hike next month.
The International Energy Agency says the oil glut is clearing out even as OPEC producers pump at record or near record levels.
Economists are concerned the continuing stall in ouput will restrain the growth of the economy as a whole.
Following the solid job growth in June, the July report suggests the labor market remains a bright spot for the U.S. economy.
The rate cut is part of an "unexpectedly large" package of measures aimed at stimulating the U.K. economy in the wake of the Brexit vote.
Hosting the Rio Olympics will be a net negative for Brazil's economy, predicts Euler Hermes.