The strongest growth in the U.S. services sector in nearly two years powered a sharp acceleration in overall business activity in August, offsetting a slowing of growth in a manufacturing sector being restrained by reduced stock building and supply disruptions from the U.S.-led war with Iran. S&P Global said its flash services Purchasing Managers’ Index rose to 56.8, the highest since December 2024, from 54.6 in July.
US economic activities grew faster in Aug-26. The flash reading of the US S&P Global Composite PMI rose to 56.0 in Aug-26 (Jul-26: 54.5), marking its strongest growth since Apr-22. Headline momentum was primarily anchored by a sharp resurgence in service sector activity, which reached a 20-month high and effectively cushioned a continued moderation in manufacturing activities.
Services activity was the main driver of the improvement, with the flash Services PMI jumping to 56.8 (Jul-26: 54.6), the highest level since Dec-24 and well above market expectations of 54.0. Growth in services demand strengthened while employment increased at its fastest pace since early 2025, suggesting that domestic demand remains resilient. However, capacity pressures also intensified, with backlogs rising sharply amid stronger demand.
Manufacturing momentum moderated but remained expansionary, with the flash Manufacturing PMI easing to 53.2 (Jul-26: 53.9), a 5-month low. Factory output recorded its weakest rise in 13 months as earlier precautionary inventory accumulation began to fade, while persistent supply-chain disruptions and raw-material shortages continued to constrain production. Nevertheless, order books remained relatively firm and manufacturing employment improved, suggesting that the slowdown reflects some normalisation rather than an outright deterioration in factory conditions.
The Aug-26 PMIs point to a renewed pick-up in US growth momentum entering 3Q26, increasingly supported by the services sector. Stronger demand, improving employment and better business confidence suggest that near-term economic growth should remain sustainable, with the latest survey pointing to a rebound from the softer 2Q26 performance. Nevertheless, MBSB said it remains cautious on the outlook given persistent supply-chain disruptions, elevated energy and input costs, and tighter financial conditions. While selling-price pressures moderated in August, overall cost inflation remains historically elevated, suggesting that resilient growth alongside lingering inflation risks could keep the Fed cautious and biased towards keeping monetary conditions restrictive for longer.
