"Growth acceleration + cooling inflation" combination emerges! U.S. August PMI rises to highest since 2022

According to Wall Street Insights APP, U.S. business activity accelerated significantly in August, with robust expansion in the services sector driving overall economic growth to the highest pace in over four years. Meanwhile, business hiring and future confidence improved markedly. At the same time, price pressures eased, providing new positive signals for markets to assess U.S. economic growth and inflation prospects.

S&P Global’s preliminary data released on Friday showed that the U.S. Composite Purchasing Managers’ Index (PMI) output index rose to 56.0 in August from July’s 54.5, marking the highest reading since April 2022 and accelerating for a second consecutive month. A PMI above 50 indicates that economic activity is expanding.

Among sub-sectors, services played the leading role in driving economic growth this month. The U.S. services PMI business activity index surged from 54.6 to 56.8 in August, a 20-month high, indicating a strong rebound in activity after a relatively sluggish second quarter.

By contrast, the momentum in manufacturing expansion weakened. The manufacturing PMI fell to 53.2 from 53.9 in August, hitting a five-month low; the manufacturing output index dropped from 53.9 to 51.9, the lowest in 13 months.

S&P Global noted that U.S. business activity in August accelerated to the fastest pace since April 2022, signaling a notable pick-up in economic growth so far in the third quarter, though there was a divergence between manufacturing and services sectors. The manufacturing sector, strong in Q2, lost momentum over the summer, while the services sector became the new growth engine.

On the demand side, overall U.S. business orders continued to grow robustly. Both manufacturing and services recorded solid new order growth in August, although the manufacturing order growth slowed, while demand for services further improved.

The cooling in manufacturing growth was partly due to the gradual unwinding of preventive inventory accumulation made earlier by businesses to cope with price rises and supply shortage risks amid the Middle East war. In August, the increase in input purchasing by manufacturers declined to its lowest this year, while raw material shortages also somewhat constrained production.

However, U.S. businesses still faced significant supply chain pressures. Supplier delivery times were again much longer in August, reaching a high degree of deterioration over the past four years. Surveyed firms attributed delays to shipping disruptions, tariffs, and insufficient supplier inventories.

Supply delays led to continued accumulation of backlogged orders in manufacturing. Since the onset of the Middle East war, the pace of order backlog growth in manufacturing has reached levels not seen since 2022. Meanwhile, strong demand and supply constraints also started to affect the services sector, with the increase in unfinished service sector orders hitting the fastest since May 2022 in August.

Business Confidence Rebounds; Hiring Growth at Fastest Pace in 18 Months

With rising orders and greater optimism about future economic prospects, the U.S. labor market also improved significantly.

U.S. businesses sharply increased payrolls in August, with hiring growing at the fastest pace since January 2025 and the second-highest in the past four years. Over the previous eight months, U.S. business headcounts had shown virtually no significant change.

The growth in services hiring was particularly strong, reaching the highest rate since early last year; manufacturing employment also rose, showing the largest gain since May of this year.

The improvement in hiring willingness was mainly driven by more orders and increased business confidence. Business outlook for output over the next year improved for the third consecutive month in August, reaching its highest since November last year.

Firms noted that rising backlogs, increased customer inquiries, business expansion plans, and diminished concerns about tariffs and economic effects of the Middle East war together improved future operating outlook. Confidence among manufacturers and service firms both strengthened.

Inflation Pressure Eases; Selling Price Growth Noticeably Slows

Meanwhile, signs of easing price pressures emerged in August.

Considering both goods and services, firms’ average input cost increases slowed to the lowest since February this year. Service sector cost inflation, in particular, fell back distinctly from the 14-month high hit in July, and manufacturing input cost growth fell for a third consecutive month.

However, historically, businesses’ cost pressures remained high. Surveyed companies noted that high energy prices, supply chain tensions, and tariffs were still pushing business costs up. Due to stronger price pressures in July, average cost growth so far in Q3 still slightly exceeded Q2.

As input cost inflation dropped to its lowest since the start of the Middle East war, the pressure on companies to pass on costs to consumers also diminished.

In August, the growth in average selling prices for goods and services fell to its lowest since November last year. Service sector selling price inflation fell to a 10-month low, while for manufacturing it dropped to a six-month low. Mentions by firms of the need to pass on rising fuel and energy costs to consumers decreased significantly, an important reason for the slowdown in selling price growth.

Manufacturing Remains in Expansion, but Growth Momentum Continues to Weaken

Looking at manufacturing alone, the August preliminary PMI dropped from 53.9 to 53.2, the lowest since March, but still within a relatively high range over the past four years.

Manufacturing output growth slowed for a third straight month, falling to the lowest since July last year. New orders were more resilient but also saw growth slow to the lowest since March.

Inventory factors also weighed on the manufacturing PMI, with manufacturers’ input purchases declining in August for the first time since February this year.

However, longer supplier delivery times and jobs growth provided some support to the manufacturing PMI. Although supply delays eased slightly from before, they were still the third most severe in the past four years; manufacturing employment increased moderately, with the strongest growth since May.

Overall, the August PMI data showed that U.S. economic growth momentum is clearly strengthening, with a rapid services recovery offsetting the cooling in manufacturing, alongside simultaneous improvements in business hiring and confidence. Notably, as economic activity accelerates, the gains in companies’ input costs and selling prices are actually slowing, presenting a combination of "faster growth and cooler price pressures." However, energy prices, tariffs, and supply chain bottlenecks still keep business costs at historically elevated levels, and whether these will continue to cool needs further observation.