US business activity accelerated at the start of the third quarter, with S&P Global’s Flash Composite PMI Output Index rising from 51.9 to 53.6 in July, its highest level in eight months. The improvement was driven by the services sector, where the Business Activity Index climbed from 51.2 to 53.6, also an eight-month high. Manufacturing, however, showed signs of losing momentum. The Manufacturing PMI edged down from 53.9 to 53.8, while the Manufacturing Output Index fell sharply from 56.2 to 53.6, marking a four-month low as earlier inventory-driven strength began to fade.
According to S&P Global Market Intelligence Chief Business Economist Chris Williamson, the survey is consistent with the US economy expanding at an annualized pace of around 2.0% in the third quarter, improving from the roughly 1.2% pace signaled for the second quarter. Businesses also returned to hiring for the first time in three months, pointing to improving labor demand. However, Williamson cautioned that some of July’s strength may prove temporary, with spending boosted by the FIFA World Cup and USA 250 anniversary celebrations.
More importantly, the survey highlighted renewed signs of cost pressures emerging beneath the surface. Manufacturers reported intensifying supply chain delays and a renewed increase in input prices as inventory accumulation lost momentum. Williamson warned that the latest escalation in the Middle East is likely to aggravate supply disruptions and inflation pressures further, raising downside risks for growth. The data therefore suggest the US economy entered the third quarter on firmer footing, but the durability of that improvement will depend heavily on whether geopolitical tensions evolve into another sustained energy and supply-chain shock.
Economic Data
| Indicator | Actual | Previous |
|---|---|---|
| Flash Composite PMI Output Index | 53.6 | 51.9 |
| Flash Services PMI Business Activity Index | 53.6 | 51.2 |
| Flash Manufacturing PMI | 53.8 | 53.9 |
| Flash Manufacturing Output Index | 53.6 | 56.2 |
Key Takeaways
- US private-sector activity accelerated in July, with the Composite PMI rising to an eight-month high of 53.6.
- Services led the improvement, with business activity also reaching an eight-month high.
- Manufacturing remained in expansion but lost momentum as earlier inventory building began to fade.
- Employment increased for the first time in three months, pointing to firmer labour demand.
- S&P Global estimates the survey is consistent with annualized GDP growth of around 2.0% in Q3, up from roughly 1.2% signaled for Q2.
- Temporary factors, including spending related to the FIFA World Cup and USA 250 celebrations, may have boosted July activity.
- Manufacturers reported worsening supply chain delays and renewed input-cost inflation.
- Escalating Middle East tensions are expected to intensify supply disruptions and price pressures, posing downside risks to growth.
