The U.S. economy has delivered a stronger August signal than investors expected, but the message is not an uncomplicated one. S&P Global’s flash Composite Output Index rose to 56.0 from 54.5 in July, its highest reading since April 2022. The acceleration was powered by services, where the activity index climbed to 56.8 from 54.6, the strongest result since December 2024 and well above the 54.0 level expected by economists surveyed by Reuters.
That matters because a reading above 50 indicates expanding activity, and the latest survey points to more than a brief continuation of growth. New business at service companies increased at the fastest pace since December 2024, while services employment rose by the most in 19 months. S&P Global said the survey data currently indicate annualized third-quarter growth approaching 3%, compared with the 1.5% annualized pace recorded in the second quarter.
The improvement also looks more durable than July’s headline strength. Spending around the FIFA World Cup and celebrations marking the 250th anniversary of U.S. independence had supported activity in July. Those temporary boosts were absent in August, yet service-sector growth accelerated rather than faded. That suggests demand has broadened enough to keep companies adding staff and working through a larger flow of new orders.
Manufacturing, however, told a different story. The flash manufacturing PMI slipped to a five-month low of 53.2 from 53.9, while factory output grew at its weakest pace in 13 months. Reduced safety-stock building and supply disruptions linked to the Iran war weighed on production, and the earlier rush by companies to add inventories continued to lose momentum. The divergence leaves the expansion increasingly dependent on services, consumer demand and financial activity rather than balanced strength across the economy.
For investors, the most important question is whether faster growth can coexist with easing inflation. The August survey offered some relief: selling-price inflation softened to a six-month low, and overall price pressures eased from July. Yet input costs were still rising at an elevated pace, with higher energy costs a continuing source of pressure. S&P Global also said the average increase in costs so far in the third quarter remained slightly above the second-quarter pace.
That combination helps explain why the bond market did not celebrate the growth surprise. The 10-year Treasury yield rose to 4.73% on Friday from 4.69% late Thursday, according to the Associated Press, even as U.S. equities closed higher. The S&P 500 gained 0.4%, the Dow Jones Industrial Average rose about 1%, and the Nasdaq Composite added 0.4%. Stronger activity can support corporate revenue and earnings, but it can also keep borrowing costs elevated if investors conclude that inflation remains too persistent for easier monetary policy.
The survey therefore strengthens the soft-landing case while making the interest-rate outlook more demanding. Faster hiring and order growth reduce the immediate risk of a sharp slowdown. At the same time, a service-led expansion can leave price pressure persistent, especially if energy costs rise again or supply disruptions intensify. That is a less comfortable mix for long-duration bonds, highly valued equities and companies that depend heavily on refinancing.
The flash figures are preliminary and survey-based, so they should not be treated as a substitute for official output, employment or inflation data. The next tests include July’s personal consumption expenditures price report and Federal Reserve Chair Kevin Warsh’s Jackson Hole speech. If those signals confirm cooling inflation, August’s growth acceleration could look constructive. If price pressure proves sticky, the same resilience may instead reinforce the case for higher borrowing costs to last longer.
The central takeaway is that the U.S. expansion has regained momentum, but its quality now matters more than its speed. Services are carrying growth while manufacturing cools, and inflation is easing without yet looking subdued. Investors have received evidence against recession. They have not received permission to stop worrying about rates.