US service sector fuels acceleration in business activity, S&P Global says

The U.S. services sector saw its strongest growth in nearly two years, driving a significant acceleration in business activity in August, according to S&P Global. This growth helped offset a slowdown in the manufacturing sector, which has been impacted by reduced stock building and supply disruptions due to the U.S.-led war with Iran.

The Purchasing Managers’ Index for services reached 56.8, the highest since December 2024, while the Composite Output Index hit 56.0, the highest since April 2022. This growth nearly doubled the second quarter's 1.5% annualized expansion rate, with S&P Global projecting overall U.S. economic growth to be near 3.0% annualized for the current third quarter.

Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that new services business growth was the fastest since December 2024, leading to a hiring surge in the services sector, which has been stronger than expected. Despite the challenges in the manufacturing sector, the service sector has become a crucial driver of the U.S. expansion, highlighting the reliance on consumer spending and financial services growth.

Inflation pressures have eased somewhat, although input costs and selling prices remain elevated, with some potential for renewed upward pressure if energy prices increase further.