The S&P Global US Composite Purchasing Managers' Index came in at 54.6 in July, up from 52.9 in June the fastest rate of growth so far this year.

US business activity grew at a sharply increased rate in July … marking a strong start to the third quarter. Employment growth was also sustained, the report said.

The US Services PMI Business Activity Index recorded 55.2 in July, picking up from 52.9 in June, and beating expectations of 52.7 in the Econoday survey of forecasters.

The report notes, however, that the private sector expansion is increasingly unbalanced, as manufacturing business conditions deteriorated while rising domestic demand powers a strengthening services economy.

Business confidence in the outlook meanwhile deteriorated in both sectors as companies reported ongoing concerns over the impact of government policies, especially in relation to federal spending cuts and tariffs, S&P said.

In addition to upward wage pressures, the U.S. government's punitive tariffs were said to be responsible for spiking cost inflation that was increasingly passed on to customers.

The resulting rate of inflation for prices charged for goods and services was among the largest seen over the past three years, it said.

The consensus looks for the PMI composite at 52.3 for July versus 52.9 in the June final. Manufacturing seen at 52.7 for July versus 52.9 in the June final. Forecasters also see services at 52.7 in July versus 52.9 in in the June final.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. The flash data are released around 10 days ahead of the final report and are typically based upon around 85 percent of the full survey sample. The report tracks changes in variables such as new orders, stock levels, employment and prices across both manufacturing and services. Production is also tracked, defined as"production" for manufacturing and"output" for services. Results are synthesized into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster output is growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The data are produced by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.