The S&P Global US Composite Purchasing Managers' Index came in at 55.4 in August, up from 55.1 in July, marking the highest increase so far this year in business activity.

Growth was seen across both manufacturing and service sectors of the economy, the report said. Hiring also picked up. Job creation reached one of the highest rates seen over the past three years as companies reported the largest build-up in uncompleted work since May 2022. the report said.

Tariffs were again the main driver of sharply higher costs, which in turn fueled the steepest rise in average selling prices recorded over the past three years.

The US Services PMI Business Activity Index recorded 55.4 in August, a slight dip from 55.7 in July, and beating expectations of 53.0 in the Econoday survey of forecasters. The Manufacturing PMI jumped to 53.3 in August from 49.8 last month.

There was strong growth in the services economy, despite the decline from July's year-to-date high. Sales growth saw the fastest improvement in demand for services since December 2024, boosted by a modest rebound in services exports.

There was a marked pickup in the manufacturing sector, with production spiking at the fastest rate since May 2022. New orders also increased in August at the highest rate since February 2024, primarily due to rising domestic demand as well as the biggest jump in goods exports for 15 months.

As for price inflation, companies across both manufacturing and service sectors collectively reported the steepest rise in input prices since May and the second-largest increase since January 2023, the report said, adding rates of increase accelerated in both sectors.

In addition, Average prices charged for goods and services rose at the sharpest rate since August 2022 as firms passed higher costs on to customers. While goods price inflation eased slightly for a second straight month, it is among the highest seen over the past three years. Service sector price inflation meanwhile was the sharpest since August 2022.

The PMI manufacturing index is expected to remain marginally in contraction at 49.7 in the first read for August versus 49.8 in July final. Services seen at 53.0 versus 55.7 in July.

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.