US business activity expanded at a faster-than-expected pace in July, with the services sector noticeably rebounding thanks to the World Cup and Independence Day celebrations. This pushed the Composite PMI to an eight-month high, indicating a strong start to the third quarter for the US economy. However, manufacturing momentum slowed, and supply chains tightened again.

On Friday, S&P Global released data showing the US July Composite PMI flash reading rose to 53.6, exceeding the market consensus of 52.2 and the prior month's 51.9, marking the highest level in eight months. The Services PMI flash reading rose to 53.6, significantly above the expected 51.5 and the previous 51.2, hitting its highest point since November 2025. The Manufacturing PMI flash reading came in at 53.8, slightly below the prior month's 53.9, setting a new four-month low.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated that the July PMI data corresponds to an annualized US economic growth rate of approximately 2.0%. This is notably higher than the roughly 1.2% rate reflected by the PMI in the second quarter, implying that the US economy is off to a good start in the third quarter.

However, he also cautioned that the consumption boost from the World Cup and the 250th-anniversary celebrations of the founding of the United States might be temporary. He added that the recent escalation of the Middle East situation further increases risks to supply chains and inflation.

Service Sector Drives Economic Acceleration, Strong Start to Third Quarter

US business activity clearly accelerated in July, with growth coming almost entirely from the services sector.

The survey indicated that the World Cup, Independence Day, and a series of events celebrating the 250th anniversary of the founding of the United States spurred consumer spending on dining, hotels, travel, and entertainment. This propelled the Services PMI to 53.6, its highest since November 2025, and also lifted the Composite PMI to an eight-month high.

The labor market also released positive signals. Corporate hiring activity recovered to growth, with the employment index turning positive for the first time after three consecutive months of decline. Both the manufacturing and services sectors added workers, reflecting an improvement in short-term business demand expectations.

However, manufacturing performance began to cool. The Manufacturing PMI fell to 53.8, a four-month low. Williamson pointed out that the inventory accumulation effect from companies pre-stocking over the past few months is diminishing, leading to a slowdown in manufacturing growth momentum.

Supply Chains Worsen Again, Corporate Price Hikes Fastest in Nearly Four Years

Despite improved demand, pressure on the supply side has clearly increased. The survey showed that the pace of supplier delivery time extensions was the fastest since August 2022, indicating a re-accumulation of supply chain bottlenecks.

At the same time, corporate input costs rose to their highest level since May 2025. Rising energy prices, increased transportation costs, tariffs, and higher raw material prices collectively pushed up business costs. Companies are also accelerating the pass-through of costs to consumers, with the rate of selling price increases being the fastest in nearly four years, signaling a resurgence of inflationary pressures.

Chris Williamson stated that the most concerning development in July was the further intensification of supply chain delays, accompanied by a renewed rise in price pressures. This is constraining corporate growth and beginning to dampen demand.

Middle East Situation Becomes Biggest Variable, July Rebound May Not Signal Trend Improvement

S&P Global remains cautious regarding the future outlook.

Chris Williamson noted that the boost to consumption from the World Cup and holiday events was a one-off shot, and this improvement may not be sustainable. What is more concerning is that the recent escalation of the Middle East situation could further disrupt global supply chains, push up energy prices, and exacerbate corporate cost pressures.

He stated that developments in the Middle East over the past few days will only further heighten concerns about supply chains and prices, bringing greater downside risks to the near-term outlook for the US economy. This also means that the rebound in July may not be the beginning of a sustained improvement trend.

Overall, this round of PMI data shows that the US economy performed better than expected at the start of the third quarter. The service sector has once again become the engine of growth, and employment has also improved. However, at the same time, marginal weakening in manufacturing, the re-emergence of supply chain bottlenecks, faster corporate price increases, and new geopolitical risks all mean that the US economy still faces the challenge of coexisting growth and inflation.