American business activity is expanding at its fastest clip in over four years, according to fresh data that suggests the economy still has plenty of gas in the tank.
S&P Global reported Friday that its flash U.S. composite output index, a closely watched gauge of purchasing managers at roughly 1,150 factories and service firms, climbed to 56.0 in August from 54.5 in July. That's the strongest reading since April 2022, and anything above 50 signals growth.
The survey now points to third-quarter growth approaching 3% on an annualized basis, a notable acceleration from the 1.5% pace seen in the second quarter.
"U.S. business is booming, with firms reporting the fastest output growth for over four years so far in the third quarter as the expansion picked up further momentum in August," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Hiring Accelerated, Inflation Eased: That's Good News
The services sector led the charge, with its business activity index jumping to 56.8 from 54.6, a 20-month high and the fastest expansion since December 2024.
"Jobs were added at the fastest rate since the start of last year as increasingly confident companies took on more staff to meet higher demand," S&P Global noted.
Business output expectations also improved for a third straight month, reaching a nine-month high.
On the inflation front, there's more good news. Input cost inflation ran at its slowest pace since February, and prices charged rose at the weakest rate since November, with services seeing a ten-month low and manufacturing a six-month low. Fewer firms reported passing through higher fuel and energy costs, which should offer some relief to consumers and policymakers alike.
But not everything is rosy. Manufacturing went the other direction, with the flash factory output index falling to 51.9 from 53.9, a 13-month low. The headline manufacturing PMI slipped to 53.2 from 53.9, the weakest since March, though it remains among the higher readings of the past four years.
S&P Global attributes the factory slowdown to two factors. First, safety-stock building, which had fueled goods production in the early months of the war, is now fading. Second, supply chain delays lengthened again in August to one of the greatest extents in four years, blamed on shipping disruption, tariffs, and thin inventories at suppliers.
Manufacturers' input buying rose only slightly, the smallest increase this year, and purchases of inputs fell outright for the first time since February.
That combination — accelerating growth with cooling selling prices — is the friendlier version of the data for equity investors, and it lands with the SPDR S&P 500 ETF Trust (SPY) near record levels. The Invesco QQQ Trust (QQQ) has gained 25% over the past year.
