The Dow Jones Industrial Average climbed 559 points on Thursday after a surprisingly strong reading on US business activity gave investors exactly the kind of data they’d been hoping for. The S&P Global flash US composite Purchasing Managers’ Index hit 56.0 in August, up from 54.5 in July, marking its highest level in 52 months.
That’s the fastest pace of private-sector expansion since April 2022, back when rate hikes were just getting started and “transitory” was still making the rounds as the Fed’s favorite adjective.
Services carried the load
The services sector was the star of the report, posting a PMI of 56.8, its strongest reading in 20 months. For context, anything above 50 signals expansion, so 56.8 represents a comfortably accelerating pace of growth in the sector that accounts for the bulk of US economic output.
Manufacturing told a slightly different story. Its PMI slipped to 53.2, a marginal decline from the prior month. Still, it remained firmly in expansion territory.
Beyond the headline numbers, the underlying components of the report painted an encouraging picture. Employment growth accelerated meaningfully, and business expectations surged to a nine-month high.
Inflation pressures eased, but didn’t vanish
Input cost inflation moderated across the survey, offering some relief to businesses that have been navigating elevated costs for the better part of two years. Selling-price inflation also eased, suggesting that companies felt less pressure to pass costs along to consumers.
The caveat is that energy costs remain a persistent source of inflationary pressure. Geopolitical tensions in the Middle East continue to cast a shadow over energy markets specifically.
What the rally tells us about market sentiment
Major indexes have been testing or setting new records throughout the year, even as concerns about energy costs, supply chains, and geopolitical risk have lingered in the background. The composite PMI at 56.0 is meaningful because it captures activity across both services and manufacturing in a single number, and at 52-month highs suggests the economy’s momentum is broadening rather than narrowing.
The employment component of the report deserves particular attention. Robust hiring at a time when inflationary pressures are moderating is close to the textbook definition of a soft landing. If businesses are confident enough to add workers without jacking up prices, it signals an economy that’s growing sustainably rather than overheating.