(Alliance News) - US business activity grew at the fastest rate recorded in the year so far during August, S&P Global reported on Thursday.

The composite purchasing managers' output index rose to an eight-month high of 55.4 points for August from 55.1 in July, according to S&P Global's flash estimate.

The flash manufacturing PMI soared to a 39-month high and moved above the neutral 50-point mark separating growth from contraction, to post 53.3 points for August, up from 49.8 in July.

This was ahead of the FXStreet-cited consensus, which had pencilled in a slight fall to 49.7.

The flash US manufacturing output index also improved to 55.2 points in August from 51.3 in July.

However, the services PMI business activity index eased slightly to 55.4 points from 55.7, but comfortably remained above the 50-point mark. This was ahead of the FXStreet consensus of 54.2.

S&P Global said hiring picked up during the period, as job creation reached one of the highest rates over the last three years.

Business confidence in the outlook improved, but remained "much weaker" than the start of the year amid continued concerns over the impact of government policies, particularly tariffs.

"Tariffs were again widely cited as the principle cause of sharply higher costs, which in turn fed through to the steepest rise in average selling prices recorded over the past three years," S&P Global added.

Manufacturing production surged to the steepest monthly rise since May 2022, as new order inflows picked up, primarily on the back of rising domestic demand but also helped by the biggest rise in goods exports for 15 months.

"A strong flash PMI reading for August adds to signs that US businesses have enjoyed a strong third quarter so far. The data are consistent with the economy expanding at a 2.5% annualized rate, up from the average 1.3% expansion seen over the first two quarters of the year," said S&P Global Market Intelligence Chief Business Economist Chris Williamson.

"Companies across both manufacturing and services are reporting stronger demand conditions, but are struggling to meet sales growth, causing backlogs of work to rise at a pace not seen since the pandemic-related capacity constraints recorded in early 2022. Stock building of finished goods has also risen at a survey record pace, linked in part to worries over future supply conditions."

Williamson said the rise has "bolstered firms' pricing power". As a result, companies have passed on tariff-related cost increases in increasing numbers which indicates that inflation pressures are at their highest for three years.

"The resulting rise in selling prices for goods and services suggests that consumer price inflation will rise further above the [Federal Reserve]'s 2% target in the coming months. Indeed, combined with the upturn in business activity and hiring, the rise in prices signalled by the survey puts the PMI data more into rate hiking, rather than cutting, territory according to the historical relationship between these economic indicators and [Federal Open Market Committee] policy changes."

The flash US composite PMI is compiled by S&P Global from questionnaires sent to panels of around 650 manufacturers and 500 service providers. Responses were collected between August 12 and 20.

Final August data for manufacturing will be out on September 2, with services and composite indicators to be published on September 4.

By Michael Hennessey, Alliance News reporter

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