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Investing.com - U.S. business activity sped up in July, as strength in the country’s all-important services sector helped to offset contraction in the manufacturing industry during a time of tariff-driven economic uncertainty.
S&P Global said its flash U.S. Composite PMI Output Index, a tracker of both the manufacturing and services segments, rose to 54.6 this month, up from a prior reading of 52.9. A mark above 50 indicates expansion in the private sector.
It was the highest level in seven months, indicating a solid start to the third quarter even as sweeping U.S. tariffs were "widely linked to steeper cost inflation" that was being passed on to consumers, S&P Global said in a statement.
As a result, inflation for prices charged for goods and services was "among the largest seen over the past three years," S&P Global added.
"[This] suggests that consumer price inflation will rise further above the Federal Reserve’s 2% target in the coming months as these price hikes feed through to households,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, in a statement. Despite calls from President Donald Trump to cut rates quickly to boost growth, the Fed has left rates unchanged at a range of 4.25% to 4.5%, with policymakers flagging a desire to see how Trump’s aggressive tariff agenda impacts the wider economy.
The prospect of elevated tariffs led many businesses to lock in purchases earlier this year, bolstering the manufacturing sector. But the effect of this front-running appears to be fading, with S&P’s preliminary manufacturing PMI falling by more than expected to 49.5 from 52.9 in June. Economists had forecast the gauge would ease slightly to 52.7.
Its services PMI, however, increased to 55.2 from 52.9, above projections of 53.0, driven by rising domestic demand. The services sector is key for the U.S. economy, accounting for more than two-thirds of overall activity.
But with inflation pressures showing signs of intensifying, business confidence about the year ahead has deteriorated in both the manufacturing and services sectors to one of the lowest levels seen over the past two and a half years, Williamson said. Tariffs and federal government spending cuts are particularly weighing on sentiment, Williamson added.