The S&P Global US Composite Purchasing Managers' Index came in at 54.6 in August compared to the 55.4 flash reading, down from 55.1 in July, marking an uptick in activity, albeit at a slower pace.

Slower growth primarily reflected a softening of U.S. service sector expansion as, in contrast, manufacturing production rose to the greatest degree since May 2022, the report said. Total new business volumes increased at the strongest rate of the year so far, and this translated into another solid round of employment growth. Price pressures remained elevated, despite easing slightly since July.

The US Services PMI Business Activity Index recorded 54.5 in August, down from 55.7 in July, and below expectations of 55.4 in the Econoday survey of forecasters.

A marked uptick in new business volumes helped to support the latest increase in activity, meaning service providers were also suitably encouraged to add to their payroll numbers, it said. That was despite confidence in the outlook remaining relatively subdued and falling to its lowest level in four months amid ongoing worries over tariffs and associated uncertainty.

The report noted that in addition to higher employee costs, tariffs also fueled a spike in service providers' operating expenses. Selling prices were increased steeply in response, it said.

That said, there is an expectation for activity to rise from present levels over the next year with hope that interest rates will come down, in turn boosting sales and demand.

US Services Purchasing Managers' Index (PMI) is based on monthly questionnaire surveys collected from over 400 U.S. companies which provide a leading indication of what is happening in the private sector services economy. It is seasonally adjusted and is calculated from seven components, including New Business, Employment and Business Expectations.

Investors need to keep their fingers on the pulse of the economy because it indicates how various types of investments will perform. The Markit Services PMI provides advance insight into the services sector, which gives investors a better understanding of business conditions and valuable information about the economic backdrop of various markets. The stock market likes to see healthy economic growth which generally 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. The PMI data are also used by many Central Banks to help make interest rate decisions.

The IHS Markit Services Flash data give a detailed look at the services sector, the pace of growth and the direction of this sector. Since the service sector accounts for more than three-quarters of U.S. GDP, this report has a significant influence on the markets. In addition, its sub-indexes provide a picture of new business, employment, business expectations and prices.