The combination of "accelerating growth + cooling inflation" has emerged! The U.S. PMI for August has risen to the highest level since 2022.

In August, business activity in the United States accelerated significantly, with strong expansion in the service sector driving overall economic growth to its highest level in over four years. At the same time, hiring and future business confidence improved markedly. Meanwhile, pricing pressures eased, providing new positive signals for the market's assessment of the U.S. economic growth and inflation outlook. Data released by S&P Global on Friday showed that the U.S. Composite Purchasing Managers' Index (PMI) output index rose from 54.5 in July to 56.0, the highest level since April 2022, and accelerated for the second consecutive month. A PMI above 50 indicates that economic activity is in an expanding phase. The service sector became the main driving force of economic growth this month. The U.S. service sector PMI business activity index jumped significantly from 54.6 to 56.8, reaching a 20-month high, indicating a clear rebound in service sector activity, which was relatively weak in the previous second quarter. In contrast, the expansion momentum of the manufacturing sector has weakened. The manufacturing PMI fell from 53.9 to 53.2, marking a five-month low; the manufacturing output index also dropped from 53.9 to 51.9, hitting a 13-month low. S&P Global indicated that business activity in the U.S. accelerated in August to the fastest pace since April 2022, suggesting a noticeable increase in economic growth in the third quarter so far. However, a divergence has emerged between the manufacturing and service sectors, with the robust manufacturing sector gradually losing momentum over the summer, while the service sector has become the new engine of growth. On the demand side, U.S. business orders remain strong overall. Both manufacturing and service sectors recorded relatively robust new order growth in August, although the growth rate of manufacturing orders slowed, while service sector demand improved further. The cooling of manufacturing growth is partly related to the waning effects of prior precautionary inventory accumulation by companies to cope with price increases and supply shortages caused by the Middle East conflict. The increase in manufacturers' procurement inputs fell to the lowest level of the year, and raw material shortages have also somewhat limited production. However, U.S. companies still face notable supply chain pressures. In August, vendor delivery times lengthened considerably again, with the deterioration at a high level not seen in the past four years. Respondents attributed this to shipping delays, tariffs, and insufficient supplier inventories. Supply delays have led to the continued accumulation of unfinished orders in manufacturing. Since the onset of the Middle East conflict, the growth rate of manufacturing backlogged orders has reached levels not seen since 2022. Meanwhile, strong demand and supply constraints have also begun to impact the service sector, with the growth rate of unfinished orders in the service sector hitting its fastest pace since May 2022. Business confidence has rebounded, with hiring growth at its fastest pace in a year and a half. With the increase in orders and improved business outlook, the U.S. job market has shown significant improvement. In August, U.S. businesses saw a substantial increase in employment, with the hiring growth rate at its fastest since January 2025, and the second highest level in the past four years. In the previous eight months, employment numbers in U.S. businesses had shown nearly no significant changes. The growth in service sector hiring has been particularly strong, reaching its highest level since early last year; manufacturing employment also increased, marking the highest increase since May of this year. The improved willingness to hire among businesses is primarily driven by increased orders and enhanced business confidence. In August, businesses expectations for output over the next year improved for the third consecutive month, reaching the highest level since November of last year. Businesses reported that the rise in backlogged orders, increased customer inquiries, expansion plans, and eased concerns over tariffs and the economic impact of the Middle East conflict have collectively improved their future business outlook. Confidence among both manufacturing and service sector businesses has strengthened. Inflationary pressures have eased, and the rate of increase in sales prices has significantly slowed. At the same time, signs of easing pricing pressure emerged in August. Across goods and services, the average growth rate of input costs for businesses fell to the lowest level since February of this year. In particular, service sector cost inflation dropped significantly from the 14-month high reached in July, while manufacturing input cost growth declined for the third consecutive month. However, in historical terms, pressure on business costs remains high. Surveyed companies reported that high energy prices, supply chain tightness, and tariffs continue to drive up operational costs. Due to the strong price pressures in July, average cost increases in the third quarter so far are still slightly above those in the second quarter. As input cost inflation has dropped to the lowest level since the onset of the Middle East conflict, the pressure on businesses to pass costs onto consumers has also weakened. In August, the average increase in sales prices for goods and services fell to the lowest level since November of last year. Service sector sales price inflation dropped to a ten-month low, while manufacturing sales price inflation decreased to a six-month low. Companies mentioned that instances of needing to transfer increased fuel and energy costs have significantly decreased, which is an important reason for the slowdown in sales price increases. The manufacturing sector continues to expand, but growth momentum has been consistently weakening. Looking specifically at the manufacturing sector, the preliminary PMI for August fell from 53.9 to 53.2. Although it reached the lowest level since March, it still remains within a relatively high range over the past four years. The manufacturing output growth rate has slowed for the third consecutive month, dropping to its lowest point since July of last year. The performance of new orders has shown relatively more resilience, although its growth rate has also fallen to the lowest since March. Inventory factors have also negatively impacted the manufacturing PMI, as the procurement volume of input materials for companies declined for the first time since February of this year. However, the lengthened vendor delivery times and job growth provide some support to the manufacturing PMI. Although the degree of supply delays has slightly eased compared to before, it remains at the third most severe level in the past four years; manufacturing employment, on the other hand, has increased moderately, reaching its highest growth rate since May. Overall, the PMI data for August indicate that the momentum of economic growth in the United States is clearly strengthening, with the rapid recovery in the service sector offsetting the cooling effects in manufacturing while business hiring and confidence improve in tandem. Notably, as economic activities accelerate, the increases in input costs and sales prices have actually slowed down, presenting a combination of "accelerating growth and easing price pressures." However, energy prices, tariffs, and supply chain bottlenecks continue to keep business costs at historically high levels, and whether this easing can be sustained remains to be observed.