Fresh data from S&P Global indicates that US business activity accelerated notably in August, with the composite Purchasing Managers' Index (PMI) output index climbing to 56.0 from July's 54.5. This marks the strongest reading since April 2022 and represents the second consecutive month of significant acceleration, with any figure above 50 signaling economic expansion.
The services sector emerged as the primary engine of growth this month, with its business activity index jumping to 56.8 from 54.6, reaching a 20-month high. This suggests that the relatively subdued services activity seen in the second quarter is now undergoing a clear recovery. In contrast, manufacturing momentum has cooled, with the sector's PMI slipping to 53.2 from 53.9, marking a five-month low, while its output index fell to 51.9, the weakest reading in 13 months.
Growth Accelerates While Manufacturing-Services Divergence Widens
S&P Global noted that August's acceleration to the fastest pace since April 2022 indicates a clear pickup in economic growth during the third quarter, though the performance gap between manufacturing and services has widened. The manufacturing sector, which showed strength in the second quarter, has been gradually losing momentum through the summer, while services have become the new growth driver.
Demand conditions remain robust overall, with both sectors recording solid new order growth in August. However, manufacturing order growth has moderated while services demand continues to improve. The cooling in manufacturing partly reflects the fading of precautionary inventory accumulation that had been driven by concerns over price increases and supply shortages related to the Middle East conflict. August saw the smallest increase in manufacturers' input purchasing since the start of the year, with raw material shortages also constraining production to some extent.
Supply chain pressures remain a significant challenge for US businesses. Supplier delivery times lengthened substantially again in August, with the deterioration ranking among the most severe in the past four years. Survey respondents attributed these delays to shipping disruptions, tariffs, and inadequate supplier inventories. These supply delays have continued to push backlogs of unfinished work higher in manufacturing, with order backlogs accumulating at a pace not seen since before the Middle East conflict began. Strong demand and supply constraints are now also affecting the services sector, where backlogs grew at the fastest rate since May 2022.
Business Confidence Rebounds and Hiring Reaches 18-Month High
The labor market has shown clear improvement alongside rising orders and more optimistic business outlooks. August saw a substantial increase in US employment, with the pace of hiring hitting its fastest since January 2025 and the second-highest level in four years. This marks a notable shift after eight months of largely flat employment figures. Services sector hiring was particularly strong, achieving its fastest growth since early last year, while manufacturing also added workers at the quickest pace since May.
Improved hiring intentions are being driven by higher order volumes and strengthening business confidence. Expectations for future output over the next twelve months improved for the third consecutive month, reaching the highest level since November last year. Companies cited growing backlogs, increased customer inquiries, business expansion plans, and easing concerns about the economic impact of tariffs and the Middle East conflict as factors brightening the outlook. Confidence improved across both manufacturing and services firms.
Inflation Pressures Moderate as Selling Price Increases Slow
August brought signs of easing price pressures. The average increase in input costs across the combined goods and services sectors slowed to the weakest pace since February. Services sector cost inflation retreated notably from July's 14-month high, while manufacturing input costs rose at a slower rate for the third consecutive month. However, cost pressures remain elevated by historical standards, with companies reporting that high energy prices, supply chain constraints, and tariffs continue to drive up operating expenses.
The moderation in input cost inflation to its lowest since the start of the Middle East conflict has reduced the pressure on businesses to pass costs through to consumers. Average selling prices for goods and services rose at the slowest pace since November last year, with services price inflation dropping to a ten-month low and manufacturing to a six-month low. Companies noted that fewer instances of needing to pass on higher fuel and energy costs were a key factor behind the slower price increases.
Manufacturing Maintains Expansion Despite Losing Momentum
Looking at manufacturing in isolation, the August flash PMI of 53.2, while the lowest since March, remains within a relatively elevated range for the past four years. Output growth slowed for the third consecutive month to its weakest since July last year. New orders showed more resilience but also decelerated to the slowest pace since March. Inventory dynamics weighed on the index, with input purchasing falling for the first time since February. However, longer supplier delivery times and employment growth provided some support, with delivery delays remaining the third most severe in four years and factory payrolls increasing at their fastest rate since May.
Overall, the August PMI data paints a picture of strengthening US growth momentum, with the rapid services recovery offsetting manufacturing cooling while hiring and business confidence improve in tandem. Most notably, the acceleration in economic activity has coincided with slower growth in both input costs and selling prices, creating a combination of accelerating growth and cooling price pressures. However, energy prices, tariffs, and supply chain bottlenecks continue to keep business costs historically elevated, and whether this cooling trend can be sustained remains to be seen.
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