Aug 21 (Reuters) - The strongest growth in the U.S. services sector in nearly two years powered a sharp acceleration in overall business activity in August, offsetting a slowing of growth in a manufacturing sector being restrained by reduced stock building and supply disruptions from the U.S.-led war with Iran.
The Purchasing Managers' Index surveys published by S&P Global on Friday suggest that nearly two-thirds of the way through the current third quarter, overall U.S. economic growth is on track
to double the second quarter's 1.5% annualized expansion rate.
S&P Global said its flash services Purchasing Managers' Index rose to 56.8, the highest since December 2024, from 54.6 in July and drove its Composite Output Index up to 56.0, the highest since April 2022, from 54.5 last month. The strength in services more than offset an easing in S&P's manufacturing PMI to a five-month low of 53.2 from 53.9 in July.
Readings above 50 indicate expansion in activity. Economists polled by Reuters had expected the services PMI to ease to 54.0 from a July pace that was aided by spending around the FIFA World Cup and the 250th U.S. Independence Day celebration, a pair of drivers absent in August. Forecasts saw the manufacturing index holding steady at 53.9.
"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," Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. "The survey data for the third quarter are currently pointing to annualized growth approaching 3.0%, up solidly from the 1.5% pace seen in the second quarter."
PRICE PRESSURES REMAIN ELEVATED
New services business growth was the fastest since December 2024, allowing services hiring to grow by the most in 19 months.
The factory side of the slate showed the continued strains of the Iran war, which has led to the effective closure of the vital Strait of Hormuz, disrupting the flow of key commodity supplies and sending energy prices higher. Order growth that had jumped after the war began nearly six months ago as companies sought to pad inventories slowed for a fourth straight month, and factory output growth was the weakest in 13 months.
"As reduced safety stock building and supply delays dampen factory production growth, the service sector is now playing a key role in driving a sustained U.S. expansion, underscoring a dependency on consumer spending and financial services growth," Williamson said.
The report showed inflation pressures receded somewhat, though growth rates for both input costs and selling prices remain elevated. The average cost increase so far in the third quarter is still slightly exceeding what was seen in the second quarter despite the easing in August, the report said.
"Price pressures, while fading, also remain elevated and prone to renewed upward pressures should energy prices rise again," Williamson said.
(Reporting by Dan Burns; Editing by Paul Simao)
