Activity in the U.S. services sector accelerated in August, reaching its highest level in 20 months, according to preliminary data from S&P Global. The seasonally adjusted services Purchasing Managers' Index (PMI) increased to 56.8 from 54.6 in July, surpassing market expectations of 53.9. The reading marked the strongest expansion since December 2024.
Manufacturing activity, however, showed signs of softening. The manufacturing PMI declined to 53.2 in August from 53.9 in the prior month, falling short of forecasts and indicating a slower pace of expansion. The composite PMI, which combines both sectors, rose to 56.0 from 54.5, exceeding projections of 54.0.
The divergence between sectors reflects shifting growth momentum in the world's largest economy, with services activity outpacing manufacturing. S&P Global attributed the manufacturing slowdown to reduced inventory formation and supply chain disruptions tied to the ongoing conflict in the Middle East. Supply bottlenecks reached levels not seen in four years, constraining production for many firms.
Price pressures remained elevated across the private sector, with firms warning of potential further increases if energy costs rise. Despite these headwinds, overall business conditions improved, with output growth accelerating to the fastest pace in over four years for the third quarter to date.
Employer hiring sentiment also showed signs of recovery, as businesses grew more confident that the negative impact of geopolitical tensions and U.S. tariffs was easing. Survey data pointed to an annualized third-quarter GDP growth rate of nearly 3.0%, up from the 1.5% pace recorded in the second quarter.
