August data showed U.S. services activity accelerating sharply, manufacturing still expanding, and factory orders rebounding. But sticky input prices and softer hiring keep the outlook mixed, reinforcing concerns that strong demand could keep the Federal Reserve cautious on rates.
U.S. services activity accelerated sharply in August, with new orders and business activity pointing to solid third-quarter growth, while manufacturing remained in expansion despite some cooling in orders and hiring. For investors, the message is constructive on demand but cautious on margins and rates, as elevated input prices keep inflation pressure and Fed risk firmly in play.
U.S. production enters September with its engine running, but not at one speed. August services data accelerated sharply, while manufacturing stayed in expansion and July orders improved. The catch is inflation: input prices remained high as hiring lost momentum. The result is a U.S. manufacturing outlook built on demand, but constrained by price pressure and interest-rate risk.
Key Takeaways
ISM Services PMI rose to 55.4 in August from 54.1, beating the 54.3 estimate as new orders reached 60.9.
ISM Manufacturing PMI eased to 54.6 from 55.6 and missed the 55.2 estimate, but remained above the 50 expansion line.
Factory orders increased 0.9% in July after falling 0.2% in June, while durable goods orders rose 1.1%.
ISM services prices climbed to 72.6 from 70.3, and manufacturing prices held at 71.1, keeping inflation risks elevated.
Services employment remained contractionary at 47.8, while manufacturing employment slowed to 51.2 from 52.8.
U.S. Services PMI Reaccelerates on Strong August Demand
Services delivered the clearest growth signal in the latest U.S. economic data. The ISM Services PMI rose 1.3 points to 55.4 in August, above the 54.3 forecast. A reading above 50 signals expansion, and the latest figure points to faster activity after July’s 54.1 result. Reuters described the reading as consistent with solid third-quarter growth. More importantly, new orders surged to 60.9 from 57.2, the strongest reading since February 2023. Business activity also reached 61.7, up from 59.1 and the highest level since November 2022. Together, those figures show demand gaining force rather than merely holding steady. The S&P Global survey reinforces that view. Its services PMI rose to 56.5 from 54.6, just below the 56.8 flash estimate. The S&P composite PMI increased to 56.0 from 54.5, matching its flash reading and reaching its strongest level since April 2022. However, strong demand did not translate into stronger hiring. The ISM services employment index improved slightly to 47.8 from 47.4, but remained below 50 and missed the 51.8 estimate. Companies are expanding activity without adding workers at the same pace.
ISM Manufacturing PMI Holds Above 50 as New Orders Cool
Manufacturing remains in expansion, but August brought a clear loss of momentum. The ISM Manufacturing PMI fell to 54.6 from 55.6 and came in below the 55.2 estimate. That miss matters, but the headline still sits well above 50. The S&P Global Manufacturing PMI was steadier at 53.9, unchanged from July and above the 53.2 estimate. The details explain the softer ISM headline. Manufacturing new orders dropped to 53.7 from 56.7, falling short of the 56.0 estimate. Employment also declined to 51.2 from 52.8 and missed the 52.5 estimate. Both indexes remain expansionary, yet the direction is less encouraging than the July data. Supplier deliveries rose to 59.3 from 58.9, pointing to continued pressure in the production pipeline. Meanwhile, manufacturing prices held at 71.1. That combination gives producers a difficult operating mix: orders are still growing, but demand is cooling while costs remain elevated. The August manufacturing data do not describe a factory downturn. They describe an expansion that is losing some speed and facing persistent cost friction.
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Factory Orders and Durable Goods Support U.S. Production
The broader U.S. production data provide a firmer foundation beneath the mixed PMI readings. Factory orders increased 0.9% month over month in July, reversing a 0.2% decline in June and beating the 0.6% estimate. Orders excluding transportation rose 0.6%, following a 0.1% decline and exceeding the 0.2% forecast. Durable goods added another positive signal. Total durable goods orders rose 1.1% in July, above the 0.5% estimate and the prior 0.5% gain. Orders excluding defense jumped 1.3%, far above the 0.1% forecast and up from 0.3%. Still, the core ex-transportation measure rose only 0.4%, below the 0.6% estimate and down from 1.1%. That split matters because headline strength did not spread evenly across every category. Industrial production increased 0.2% in July, below the 0.3% estimate and the prior 0.3% gain. Year over year, production rose 1.1%, ahead of the 1% estimate but below the previous 1.29% pace. The Chicago PMI added a sharper warning, falling to 47.1 from 57.6 and missing the 58.3 estimate. In contrast, the NFIB Business Optimism Index rose to 99.8 in July from 97.4, above the 97.5 estimate. The evidence therefore favors continued production growth, but with uneven momentum across regions and categories.
Sticky Input Prices Increase Fed Rate Risk for Manufacturers
Inflation is the main complication in this otherwise solid U.S. production health check. The ISM services prices index climbed to 72.6 from 70.3, while manufacturing prices stayed at 71.1. These readings show that strong demand is arriving with high input costs. The inflation-rate series also rose from 2.22 on August 5 to 2.35 on September 1. For manufacturers, higher prices can lift nominal sales while pressuring margins. For the Federal Reserve, the combination of faster services activity and elevated prices argues for restrictive policy. After the services report, markets priced roughly a 64% chance of a 25 basis point hike at the September 15-16 meeting. Coverage of the manufacturing report put those odds near 70%. Later, comments from Fed Governor Waller pushed the probability to 50.4% from 63.2%. The swings show how sensitive rate pricing is to each new inflation and labor signal. Labor data provide the main counterweight. Services employment remained below 50, while manufacturing employment slowed but stayed above 50. Initial jobless claims were 203,000 for the week ending August 22, down from 207,000 the prior week. That claims reading does not show a sudden labor-market break. With the federal funds rate at 3.63% in August and the 30-year mortgage rate at 6.66% on August 27, financing remains a meaningful constraint. The policy signal is therefore more inflation-sensitive than growth-sensitive.
U.S. Production Outlook: Expansion Meets Inflation Pressure
The latest data show an expanding U.S. economy, led by a powerful services rebound and supported by factory and durable goods orders. Yet slower manufacturing orders, soft employment indexes, and elevated prices leave producers facing a narrower path to stronger growth. For markets, solid demand is constructive, but sticky inflation keeps higher-for-longer rate risk firmly in the calculation.
▌Common Questions
Frequently asked questions
+What did the August ISM Services PMI show about U.S. demand?
The ISM Services PMI rose to 55.4 in August from 54.1, signaling faster expansion and stronger underlying demand. New orders jumped to 60.9, the highest level since February 2023, which suggests services growth is gaining momentum.
+Is U.S. manufacturing still expanding despite the softer PMI reading?
Yes, the ISM Manufacturing PMI fell to 54.6 from 55.6 but remained above 50, which still indicates expansion. The slowdown came from weaker new orders and softer hiring, not from a contraction in factory activity.
+Why are sticky prices important for the Fed and markets?
Services prices rose to 72.6 and manufacturing prices stayed elevated at 71.1, showing that input-cost pressure remains high. That keeps inflation risk elevated and may limit how quickly the Fed can ease policy.
+What do factory orders and durable goods data say about the U.S. production outlook?
Factory orders rose 0.9% in July and durable goods orders increased 1.1%, both pointing to continued demand support for production. However, the gains were uneven across categories, so the outlook is positive but not broad-based.
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