U.S. services activity accelerated in July to its highest level since December, pointing to a solid rebound in business momentum as the third quarter got underway.
S&P Global’s services PMI rose to 55.7, beating the 55.2 consensus and up sharply from 52.9 in June. The broader composite index, which includes manufacturing, climbed to 55.1, also a seven-month high. Both figures indicate solid month-over-month growth, with S&P estimating the data are consistent with real GDP expanding at a 2.5 percent annualized pace—roughly double the rate seen in the first half of the year.
Demand improved across much of the economy. New orders rose for a 15th consecutive month, and backlogs grew at the fastest pace since May 2022. Firms continued to add staff, though often through part-time or temporary hiring. Export demand remained a weak spot, and business optimism dipped slightly amid rising input costs.
Inflation signals picked up. Businesses cited wage growth and tariffs as drivers of higher costs, and many raised prices to keep pace. Output charges rose at the fastest clip since August 2022. Still, the overall tone remained constructive, with S&P noting broad-based expansion in the service economy.
A separate sector PMI report showed growth across a majority of industries. Technology led for the second straight month, posting its fastest expansion since June 2021. Financials and industrials also recorded strong gains. Consumer goods and consumer services saw only marginal growth, while healthcare and basic materials contracted.
Together, the reports point to a reacceleration in economic activity, led by services and underpinned by resilient domestic demand—even as cost pressures complicate the inflation picture.
A separate report from the Institute for Supply Management (ISM) offered a more cautious view. Its services PMI edged down to 50.1 percent in July from 50.8 percent, just above the expansion threshold and well below the S&P Global reading. New orders and business activity slowed, and employment contracted for a second straight month, according to ISM. The ISM’s prices index jumped to 69.9 percent, the highest since 2022, with respondents widely citing tariffs as a key driver of rising costs.
The ISM and S&P Global PMIs often diverge due to differences in survey scope and composition. ISM surveys a smaller panel, with greater weight on traditional industries and public-sector–adjacent services, such as education, health care, and utilities. S&P Global captures a broader swath of private-sector firms, particularly in finance, tech, and professional services. As a result, S&P’s index tends to be more sensitive to consumer and business demand trends, while ISM’s can reflect sectoral drag from labor-heavy or regulated industries.
The Atlanta Fed’s GDPNow model rose to 2.5 percent for third-quarter growth, up from 2.1 percent last week, reflecting stronger estimates for both consumer spending and private investment. The upward revision followed recent data from ISM, BEA, and the Census Bureau. While net exports were expected to subtract slightly more from growth, the model now aligns closely with S&P Global’s estimate that early-Q3 output is running at about a 2.5 percent pace.
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