Activity in the U.S. services sector strengthened sharply in August, helping drive broader economic growth even as manufacturing momentum slowed, according to preliminary data from S&P Global.
The latest figures suggest that growth in the world’s largest economy is increasingly being supported by services, which account for a major share of U.S. economic activity.
U.S. Services PMI Climbs to 20-Month High
The flash U.S. Services Purchasing Managers’ Index (PMI) rose to 56.8 in August, up from 54.6 in July.
The reading marked the highest level in 20 months and came in well above market expectations of 53.9.
A PMI reading above 50 signals expansion, while a reading below 50 indicates contraction.
The latest result therefore points to a strong acceleration in services activity during August.
Manufacturing Growth Slows
While services improved, the manufacturing sector lost some momentum.
The flash U.S. Manufacturing PMI fell to 53.2, down from 53.9 in July and below expectations.
S&P Global said the slowdown was partly caused by weaker inventory building and supply delays linked to the ongoing conflict in the Middle East.
These disruptions have made it more difficult for some manufacturers to maintain production levels.
U.S. Composite PMI Beats Expectations
Despite weaker manufacturing growth, the strong services performance lifted the broader economy.
The Composite PMI, which combines activity in both services and manufacturing, increased to 56.0 in August from 54.5 in July.
The result also exceeded market expectations of 54.0.
The stronger reading suggests that overall private-sector activity continued to expand at a healthy pace.
Supply Disruptions Remain a Major Risk
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said supply disruptions were among the most severe seen over the past four years.
According to S&P Global, these disruptions are limiting output across a number of businesses.
Ongoing geopolitical tensions remain a key source of uncertainty, particularly for supply chains and energy markets.
Inflation Pressures Could Increase
Price pressures also remain elevated.
Williamson warned that inflation could intensify if energy prices rise again.
Higher fuel and transportation costs could increase expenses for businesses, which may eventually be passed on to consumers.
This could complicate the outlook for inflation and future Federal Reserve monetary policy.
U.S. Business Activity Shows Strong Momentum
Despite supply-chain challenges and inflation concerns, S&P Global said U.S. businesses are showing strong growth.
Companies reported their fastest output expansion in more than four years during the third quarter so far.
The survey data currently point to annualized economic growth approaching 3.0% in the third quarter.
That would represent a significant improvement from the approximately 1.5% growth rate recorded in the second quarter.
Hiring Demand Begins to Recover
The latest report also showed signs of improvement in the labor market.
Williamson said businesses are displaying a renewed willingness to hire as confidence improves.
Employers appear increasingly optimistic that the economic impact of the Iran conflict and broad U.S. tariffs may be starting to fade.
A continued recovery in hiring would provide another positive signal for the broader U.S. economy.
U.S. Economic Outlook Strengthens
The August PMI data suggest that the U.S. services sector is becoming a key driver of economic growth.
Strong services activity helped offset weaker manufacturing momentum and pushed the composite PMI higher.
However, supply disruptions, energy costs and inflation remain important risks.
If services activity and hiring continue to strengthen, the U.S. economy could enter the final months of the year with stronger-than-expected momentum.
