The Federal Reserve’s preferred inflation measure rose 2.8% in February from a year earlier, while revised government data showed the U.S. economy had slowed sharply to a 0.5% annualized growth rate in the fourth quarter of 2025, underscoring the uneven backdrop facing businesses, consumers and policymakers.

The figures come from the Bureau of Economic Analysis’ personal income and outlays report for February 2026 and its revised GDP estimates. The February PCE price index increased 0.4% from the prior month. Excluding food and energy, the core PCE price index also rose 0.4% on the month and was up 3.0% from a year earlier. The annual headline reading of 2.8% kept inflation above the Fed’s 2% objective, while the core measure showed underlying price pressure remained persistent.

The BEA said personal income decreased $18.2 billion, or 0.1% at a monthly rate, in February. Disposable personal income fell $18.3 billion, also 0.1%, while current-dollar personal consumption expenditures increased $103.2 billion, or 0.5%. After adjusting for inflation, real PCE increased only 0.1%, a sign that nominal spending gains were partly absorbed by higher prices rather than stronger real consumption.

For U.S. companies, the details point to a consumer economy that was still spending but with less underlying force. Consumer spending is central to revenue expectations across retail, travel, restaurants, financial services, housing-adjacent businesses and digital subscriptions. A 0.5% gain in current-dollar PCE can support top-line sales, but a 0.1% real increase suggests volume growth was limited. That distinction matters for corporate margins because companies may face higher input and wage costs while customers become more selective about discretionary purchases.

The spending composition also showed both goods and services contributed to the increase. BEA reported that the $103.2 billion rise in current-dollar PCE reflected a $58.7 billion increase in spending on goods and a $44.5 billion increase in services. Personal outlays, which include PCE, interest payments and personal transfer payments, increased $106.5 billion. The personal saving rate stood at 4.0% in February, leaving households with some financial buffer but not enough to remove pressure from higher borrowing costs and elevated prices.

The February report was originally scheduled for March 27 and was rescheduled because of the October-November 2025 government shutdown, according to BEA. That delay matters for markets because PCE is one of the cleanest monthly signals for the Fed’s inflation debate. Consumer price index data often draws more public attention, but the Fed’s formal inflation target is framed around PCE inflation, making the monthly personal income and outlays release a key input for interest-rate expectations, Treasury yields and equity-market positioning.

The GDP picture adds another layer. BEA’s third estimate for the first quarter showed real gross domestic product increased at a 2.1% annual rate, up from the prior estimate, while noting that fourth-quarter 2025 real GDP had increased only 0.5%. The fourth-quarter figure marked a sharp slowdown from the 4.4% rate recorded in the third quarter of 2025. In the first quarter, growth was supported by investment, exports, government spending and consumer spending, while imports, which subtract from GDP, also increased.

The rebound in headline first-quarter GDP did not erase concern about the underlying demand mix. BEA said real final sales to private domestic purchasers, a measure that combines consumer spending and gross private fixed investment, increased 1.7% in the first quarter and was revised down by 0.7 percentage point from the previous estimate. That measure is closely watched because it strips away some volatile trade and inventory effects and can give a clearer read on domestic private-sector demand.

The GDP revision also showed a weaker consumer contribution than earlier estimates had implied. BEA said the upward revision to real GDP primarily reflected a downward revision to imports, partly offset by a downward revision to consumer spending. In other words, the stronger headline GDP number did not come from a cleaner consumer acceleration. That is significant for businesses because a GDP upgrade driven by statistical trade mechanics can be less reassuring than one driven by broad household demand.

Inflation dynamics remain the central business-policy link. The Federal Reserve kept the target range for the federal funds rate at 3.50% to 3.75% at its June 17 meeting and said inflation remained elevated relative to its 2% goal. The Fed also said economic activity was expanding at a solid pace despite elevated uncertainty, while job gains had kept pace with the workforce and the unemployment rate had changed little. That language suggests policymakers are not yet treating slower consumer demand as enough by itself to justify easier policy.

The Fed’s June projections also highlighted the persistence of the inflation problem. Policymakers’ median projection showed PCE inflation at 3.6% for 2026 and core PCE inflation at 3.3%, both above the central bank’s target. Those projections were higher than earlier March estimates, indicating that officials saw a stickier price environment even as growth signals became more mixed.

For investors, the February PCE and GDP figures reinforce why economic data can produce crosscurrents rather than a single market signal. Above-target inflation can pressure rate-sensitive shares, long-duration growth stocks and real estate-linked assets by keeping borrowing costs elevated. Slower real consumer spending can weigh on earnings expectations for retailers and consumer discretionary companies. But a rebound in first-quarter GDP, stronger investment and corporate profit growth can support the argument that the economy remains resilient enough to avoid a near-term downturn.

The latest available PCE data for May, released after the February report, showed inflation had accelerated further, with the PCE price index up 4.1% from a year earlier and core PCE up 3.4%. That newer reading makes the February data part of a broader inflation path rather than an isolated release. It also explains why the Fed’s preferred gauge remains central to market narratives about whether the next policy move is a hold, a hike or a delayed easing cycle.

Businesses are likely to read the data as a cautionary signal rather than a recession warning. Household spending was not collapsing in February, and first-quarter GDP later improved. But the combination of modest real spending, falling personal income, above-target core inflation and revised evidence of softer domestic demand suggests pricing power may be uneven. Companies with essential products, strong brands or exposure to business investment may be better positioned than firms dependent on highly discretionary household purchases.

The broader takeaway is that the U.S. economy entered 2026 with inflation still too high for the Fed’s comfort and growth patterns that were less straightforward than headline GDP suggested. February’s 2.8% PCE reading, 3.0% core inflation rate and limited real spending gain showed households still absorbing price pressure. The revised 0.5% fourth-quarter GDP rate showed how quickly momentum had faded late last year. Together, the data keep inflation, interest rates and consumer resilience at the center of the U.S. business outlook.