US economic activity surged in July as the S&P Global Flash Composite PMI jumped to 53.6, well above the 52.2 forecast and marking an eight-month peak. This sharp increase suggests the economy is expanding faster than anticipated, challenging assumptions about the Federal Reserve’s interest rate strategy for the coming months.
Services Drive Growth, Manufacturing Slows Slightly
The services sector led the uptick, with the Services Business Activity Index climbing to 53.6 from June’s 51.2. Manufacturing, however, painted a more mixed picture. While the Manufacturing PMI remained steady at 53.8, the Manufacturing Output Index slid to a four-month low of 53.6, down from June’s 56.2. Employment edged up for the first time in three months, and business confidence reached its highest point in eight months.
Chris Williamson, Chief Business Economist at S&P Global, linked this PMI reading to an annualized GDP growth rate of roughly 2.0% in Q3, rebounding from weaker performance in Q2. Yet, inflation pressures are mounting alongside growth: input cost inflation hit a 14-month high in July, with selling price inflation climbing to levels not seen since August 2022. Geopolitical tensions in the Middle East have contributed to supply chain delays, adding to the cost pressures.
Williamson cautioned that certain one-time events the FIFA World Cup and USA 250 celebrations might have temporarily bolstered the numbers. The survey included responses from about 650 manufacturers and 500 service firms from July 9 to July 23, with final data expected in early August.
Markets face a dilemma as strong PMI data collides with inflationary signals, complicating expectations for Federal Reserve policy decisions in the latter half of 2026.
