Services Accelerated as Factory Growth Cooled. The U.S. Economy Is Splitting at the Seams.

U.S. business activity accelerated in August, but the strength came largely from services. S&P Global’s August 21 flash PMI showed services rising to 56.8 from 54.6 in July, while manufacturing slipped to 53.2 from 53.9. The composite index reached 56.0, its highest reading since April 2022.

The key observation is that stronger overall growth can hide a widening gap between the parts of the economy producing it.

S&P Global reported that its U.S. services PMI rose to 56.8 in August, the highest since December 2024. A reading above 50 signals an increase in activity from the prior month.

The manufacturing PMI fell to 53.2, its lowest level in five months, from 53.9 in July. Factory output growth was the weakest in 13 months, and manufacturing order growth slowed for a fourth straight month.

Services moved the other way. New business grew at the fastest pace since December 2024, while service-sector hiring increased by the most in 19 months.

The composite output index, which combines manufacturing and services activity, rose to 56.0 from 54.5. Reuters reported that this was the highest reading since April 2022.

This is a growth-divergence environment.

The economy is expanding, but momentum is shifting between sectors. Services are accelerating while manufacturing is still growing at a slower pace.

That distinction can matter when a headline number looks unusually strong. A composite index gives a useful view of the whole economy, but it does not show whether the strength is broad.

August’s report shows why the mix matters.

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One key signal is new demand.

Service businesses reported their strongest new-business growth since December 2024. Manufacturing order growth, by contrast, slowed for the fourth month in a row. Watching those two measures can show whether the gap between the sectors persists or begins to close.

Another signal is hiring. Service-sector employment increased at the fastest pace in 19 months. Hiring can offer a second check on whether stronger activity is lasting long enough for businesses to add staff.

A common misread is treating a strong composite PMI as evidence that the whole economy is accelerating together.

The August figures show something more uneven.

Another mistake is reading the decline in manufacturing PMI as contraction. At 53.2, manufacturing remained above the 50 level associated with expansion. The change was in the pace of growth, not its direction.

Slowing growth and shrinking activity are not the same thing.

Focus on the source of growth, not just the headline.

A strong top-line number tells us that activity is expanding. It does not tell us which parts of the economy are carrying the load.

In August, services supplied much of the added momentum while factory growth cooled. That makes the composition of growth as useful as the overall reading.

Economic strength is often uneven. Looking beneath the headline can show whether several engines are pulling together or whether one is doing more of the work.

The August PMI report does not present a simple strong-or-weak economy. It shows solid overall growth with a clear split underneath it.

That distinction keeps a strong headline in perspective without dismissing it.

Talk soon,
The Playbook Daily