Activity in the U.S. services sector experienced an acceleration in August, indicating a shift in growth momentum within the world’s largest economy toward this crucial sector, as opposed to manufacturing, based on a preliminary estimate. The flash U.S. services purchasing managers’ index increased to 56.8 this month, marking the highest level in 20 months and surpassing expectations of 53.9. In July, the figure was recorded at 54.6. A figure exceeding 50 indicates growth within the services sector, which constitutes a significant share of total U.S. economic activity. The increase in the services sector contributed to mitigating a “marked slowing of growth” in the manufacturing segment, attributed to diminished inventory accumulation and supply disruptions associated with the ongoing conflict in the Middle East, according to S&P Global.

The manufacturing PMI registered at 53.2, a decline from July’s 53.9 and falling short of projections. The composite PMI metric, which amalgamates the services and manufacturing sectors, registered at 56.0, an increase from the previous month’s figure of 54.5 and surpassing expectations of 54.0. Disruptions to supply flows were at “one of the greatest extents seen over the past four years, clearly constraining output in many companies,” said Chris Williamson. Price pressures remain elevated and are likely to intensify if there is a renewed increase in energy costs, according to Williamson.

Despite these challenges, U.S. business is experiencing a significant upturn, with firms indicating the most rapid output growth in over four years thus far in the third quarter, according to Williamson. “The survey data for the third quarter are currently pointing to annualized growth approaching 3.0%, up solidly from the 1.5% pace seen in the second quarter,” Williamson said. He added that the appetite for hiring has also shown a “welcome revival,” as employers gain confidence that the adverse effects of the Iran war and extensive U.S. tariffs are diminishing.