• U.S. S&P Global July final Composite PMI rises to 55.1, exceeding flash estimates of 54.6.
  • Services PMI jumps to 55.7, marking the sharpest expansion since early 2025.
  • Manufacturing PMI slips into contraction at 49.8, highlighting a growing divergence between sectors.

Strong Services Activity Drives Economic Expansion

The U.S. private sector showed unexpected resilience in July, with the S&P Global final Composite PMI climbing to 55.1, up from the preliminary reading of 54.6. The services sector led the charge, posting a 55.7 PMI—its highest level in six months—as new business inflows and hiring accelerated to meet rising domestic demand.

Input costs for service providers climbed further, pushing output prices to their fastest pace since April 2023. Despite weaker foreign demand, robust domestic activity fueled the strongest backlog of work in three years, according to the report. Employment growth also surged, suggesting labor market tightness may persist.

Manufacturing Weakens Amid Diverging Trends

While services thrived, manufacturing slipped back into contraction territory with a PMI of 49.8, down from June’s expansionary reading. Declining new orders and output weighed on the sector, contrasting sharply with services’ performance. This divergence mirrors global trends, where manufacturing recovery remains fragile even as services confidence shows signs of strain elsewhere.

“The U.S. economy is increasingly service-driven,” noted one analyst familiar with the data. “Manufacturing’s struggles aren’t dragging down growth yet, but the imbalance could complicate the Fed’s inflation fight if services keep heating up.”

Policy and Inflation Implications

Rising service-sector prices and wages may keep inflationary pressures elevated, potentially influencing the Federal Reserve’s rate decisions later this year. Supply chain pressures have eased slightly, though government tariffs continue to weigh on export demand and input costs for some industries.

Business confidence remains subdued globally, with S&P Global forecasting slower growth than pre-pandemic averages. However, the U.S. services sector’s momentum—coupled with strong employment gains—suggests the economy could avoid a near-term slowdown, barring external shocks.