Business Activity Booms to 4-Year High, Services Surge Offsets Iran War Drag

U.S. business activity accelerated in August to its fastest pace since April 2022, propelled by a strong expansion in the services sector that offset manufacturing headwinds caused by Middle East conflict. According to S&P Global’s flash purchasing managers' index released Friday, the composite output index rose to 56.0 from 54.5 in July. The services PMI jumped to 56.8, exceeding expectations and marking the highest reading since December 2024, driven by robust new business inflows and a 19-month high in hiring. Conversely, the manufacturing PMI fell to a five-month low of 53.2 as factory output and order growth cooled. S&P Global attributed the factory slowdown to reduced safety-stock building and supply chain disruptions linked to the ongoing war in Iran, which has constrained shipping lanes and elevated energy costs. Overall, survey data points to third-quarter annualized GDP growth approaching 3.0%, up from 1.5% in the second quarter.