U.S. business activity accelerated in July to its strongest pace in eight months, powered by a rebound in services that outweighed softer factory growth and renewed cost pressures, according to preliminary data released Friday by S&P Global.

The flash U.S. Composite PMI rose to 53.6 from 51.9 in June. Readings above 50 indicate that a majority of surveyed companies reported improving rather than deteriorating activity. The increase suggests the private sector entered the third quarter with more momentum than it carried through the end of the second quarter.

Services provided nearly all of the acceleration. The flash Services Business Activity Index increased to 53.6 from 51.2, reaching an eight-month high as companies reported stronger inflows of new work. The improvement was especially important because service industries account for the majority of U.S. employment and economic output, making them a central indicator of household demand and corporate spending.

S&P Global and contemporaneous market reports indicated that consumer activity associated with the FIFA World Cup and celebrations surrounding the United States’ 250th anniversary contributed to demand. Travel, hospitality, entertainment and other consumer-facing businesses were positioned to benefit from increased event-related spending, although some of that support may prove temporary.

Manufacturing presented a less robust picture but did not fall into contraction. The flash Manufacturing PMI slipped to 53.8 from 53.9, remaining comfortably above 50. Factory output continued to expand, though at its weakest pace since March, as producers encountered slower production growth, supply-chain bottlenecks and rising input costs.

The divergence shows that American businesses are moving through the year at different speeds. Service providers are benefiting from domestic demand, while manufacturers remain more exposed to shipping disruptions, commodity costs, trade restrictions and uncertainty over future orders. For companies producing physical goods, those pressures can affect inventory planning, procurement contracts and decisions about whether to expand capacity.

The most concerning element of the report was inflation. S&P Global said average selling prices increased at their fastest rate in nearly four years. Businesses also reported elevated input costs, reflecting a combination of higher energy and materials expenses, transportation disruptions and tariff-related costs. When companies pass those increases to customers, the result can show up in consumer inflation with a delay.

The combination of faster activity and stronger price pressure creates a difficult signal for the Federal Reserve. Robust services demand argues against an economy requiring immediate monetary support, while accelerating business prices could reinforce concerns that inflation will remain above the central bank’s objective. At the same time, slower factory growth suggests higher borrowing and operating costs are already weighing on some parts of the economy.

For businesses, the July data support a cautious approach to the second half of the year. Service-sector companies may see stronger revenue opportunities, particularly in travel, financial services, communications, software and professional services. However, labor expenses and vendor costs could limit the benefit to profit margins. Manufacturers may face an even more difficult balance as they manage softer production momentum alongside elevated materials and logistics costs.

The survey is an early indicator rather than a complete measure of economic output. S&P Global’s flash figures are based on most, but not all, responses expected for the month and can be revised when final readings are released. The PMI also measures whether conditions are improving or deteriorating across surveyed companies; it does not directly calculate gross domestic product.

That distinction is important because a report circulated Friday under the headline “Services Surge Pushes US Growth to 2.3% Pace as Factories Enter Contraction” cited a composite PMI of 54.6, a services reading of 55.2 and a manufacturing PMI of 49.5. Those numbers are inconsistent with S&P Global’s current July 2026 data and with reports from The Wall Street Journal, MarketWatch and other market-data outlets.

The 55.2 services reading, 49.5 manufacturing index and 2.3% annualized growth estimate instead closely match figures published for July 2025. Current July 2026 data show both major sectors expanding, although services clearly outperformed manufacturing. Treating the manufacturing sector as being in contraction would therefore overstate the weakness evident in the latest survey.

The verified figures still point to a meaningful shift in the U.S. business environment. Growth accelerated, hiring conditions improved and domestic demand remained resilient, reducing immediate concern that the economy was slipping into a broad downturn. Yet the improvement came with a renewed inflation challenge and a widening gap between service providers and goods producers.

Whether the stronger pace can persist will depend partly on the durability of consumer demand after major summer events, the direction of energy prices and the ability of supply networks to absorb disruptions. Businesses will also be watching whether stronger selling prices begin to weaken household spending or prompt customers to postpone discretionary purchases.

For financial markets, the report reinforces the possibility that economic growth and inflation could remain firm at the same time. That environment generally favors companies with pricing power and dependable domestic demand, while creating pressure for highly leveraged businesses, interest-rate-sensitive sectors and manufacturers unable to pass higher costs to customers.

The July survey therefore offers neither a clean acceleration story nor evidence of a manufacturing recession. It shows a U.S. economy gaining momentum through services while factories expand more slowly. The key risk is that the same forces supporting nominal revenue growth—strong demand and higher prices—could also keep borrowing costs elevated and make the second-half outlook more volatile.