U.S. Business Activity Hit a 52-Month High in August, and Price Pressures Eased at the Same Time

Two pieces of U.S. data landed within 24 hours of each other this week, and they pointed the same direction. S&P Global's flash Composite Output Index for August, released August 21, rose to 56.0 from 54.5 in July — the strongest reading in 52 months. The day before, the Labor Department reported initial claims for unemployment insurance fell to 206,000 in the week ending August 15.

Neither is an official measure of output or employment. The PMI is a diffusion index built from a survey of purchasing managers; claims are an administrative count of people filing for benefits. Both are early, and both get revised. What they describe is direction and speed, not level.

Where the growth came from

The composite index is a weighted blend of the services and manufacturing sides, and in August they diverged. The flash services business activity index rose to 56.8 from 54.6. The manufacturing PMI fell to 53.2 from 53.9, and the manufacturing output index — the component that feeds the composite — dropped to 51.9 from 53.9.

On a diffusion index, 50 is the line between expansion and contraction. A factory output reading of 51.9 still means more firms reported higher output than lower; it simply means fewer of them than in July. The composite rose anyway because services carry the larger weight and moved further.

US business is booming, with firms reporting the fastest output growth for over four years so far in the third quarter.

S&P Global attributed the softer factory reading in part to reduced safety-stock building and easing supply delays — that is, firms unwinding the precautionary inventory they had built rather than facing weaker end demand. That distinction matters for how durable the divergence is, and the flash release does not settle it.

Hiring and prices

• Payrolls across the surveyed firms expanded at the fastest rate since January 2025, described in the release as the second-largest increase in four years.
• Service-sector staffing showed the largest gain since early 2025; factory employment rose to its highest since May.
• Input cost inflation slowed to its weakest since February, with services costs cooling from July's 14-month peak.
• Output price inflation was the slowest since November — a ten-month low in services and a six-month low in manufacturing, with less energy cost being passed through.
• Business expectations for the year ahead reached a nine-month high.

The combination — faster output, faster hiring, slower price increases — is the one policymakers describe as favorable, because it does not require choosing between growth and inflation. It is also the combination that survey data most often shows before official data qualifies it.

The claims picture

The Labor Department's August 20 release put seasonally adjusted initial claims at 206,000 for the week ending August 15, a decrease of 6,000 from the previous week's revised 212,000. The four-week moving average was 204,000. Insured unemployment — continuing claims, which lag initial claims by a week — rose 18,000 to 1,799,000 for the week ending August 8, with a four-week average of 1,789,000 and an insured unemployment rate of 1.2%.

Initial claims measure people entering the benefits system. Continuing claims measure people still in it. The two moved in opposite directions this week, which is common at weekly frequency and is not by itself a signal about either layoffs or rehiring.

What to watch

Three things. Whether the final August PMI, due at the start of September, confirms the flash composite reading. Whether the August employment report from the Bureau of Labor Statistics shows hiring consistent with what the survey's payroll component described. And whether the cooling in the survey's output price index shows up in the August consumer price data — survey price indices and the CPI measure different things and frequently disagree.