Services PMI jumps to 53.6, lifting US composite to 8-month high

US services activity surged to a 53.6 reading in July, the strongest in eight months, lifting the composite purchasing managers index to its highest since November 2025 and pointing to annualized gross domestic product growth of about 2%, S&P Global said.

"The upturn may not be the start of an improving trend," said Chris Williamson, chief business economist at S&P Global Market Intelligence. He cited intensifying supply chain delays, renewed price pressures and risks from recent Middle East developments, saying July's improvement was partly boosted by the FIFA World Cup and USA 250 anniversary celebrations.

The flash manufacturing PMI slipped to 53.8 from 53.9 in June, missing the 54.4 consensus estimate and marking a four-month low. The services gauge of 53.6 beat expectations of 51.5 by more than two points, while the composite index rose from 51.9. All three readings remained above the 50 threshold that separates expansion from contraction.

Employment increased for the first time in three months, though the gain was slight. S&P Global said hiring remained cautious in both manufacturing and services, with high costs and trade uncertainty limiting recruitment. Some businesses continued to report labor shortages, while many chose not to replace departing workers.

Business confidence improved to an eight-month high overall, driven by services optimism that climbed to its strongest level since September. Manufacturing confidence, however, slipped to its weakest since October, weighed down by softening demand, global trade concerns, tariffs and elevated costs.

The data suggest the US economy entered the third quarter on firmer footing after a sluggish second quarter that S&P Global estimates grew at just 1.2% annualized. The last time the composite PMI was at similar levels — above 53.5 — was in November 2025, when the economy was expanding at a roughly 2.5% pace before slowing through the first half of 2026.

Price Pressures Intensify Across Services

Input cost inflation accelerated to its highest level since May 2025, driven by elevated energy prices, higher shipping costs, tariffs and broad-based supplier price increases, S&P Global said. Businesses passed more of those costs on to customers, pushing overall selling price inflation to its highest since August 2022. Services price inflation climbed to its highest in nearly four years, while manufacturing price inflation remained elevated but eased slightly.

Supply chain disruptions worsened for the 11th consecutive month, with supplier delivery times lengthening at the fastest pace since August 2022. The report cited shipping disruptions around the Strait of Hormuz, stockpiling of inventory and tariff-related supply constraints as the main drivers. Events in the Middle East over recent days will have further exacerbated these pressures, S&P Global said, raising downside risks to the near-term outlook.

The data come as investors assess the trajectory of Federal Reserve policy. The combination of stronger services activity and rising price pressures could complicate the case for rate cuts, even as manufacturing shows signs of cooling. Markets are pricing in a roughly 50% probability of a quarter-point cut at the Fed's September meeting, according to CME FedWatch data. Treasury yields edged higher following the release, with the 10-year note yield rising about 3 basis points to 4.72%, while S&P 500 futures pared earlier gains. The dollar index held near session highs as traders weighed the implications of stickier services inflation against the manufacturing slowdown.

This article is for informational purposes only and does not constitute investment advice.