U.S. business activity accelerated in July as stronger demand lifted the services sector, giving Wall Street fresh evidence that the economy entered the third quarter with more momentum than it showed during the spring. Preliminary survey data from S&P Global placed its U.S. Composite PMI Output Index at 53.6, up from 51.9 in June and the highest reading in eight months. A figure above 50 indicates that activity expanded from the previous month.

A July 31 market commentary distributed by Wyncote Wealth Management Group and published by Glenside Local highlighted the surveys as evidence of a generally healthy economy. The commentary, identified as sponsored content and attributed to Janney Montgomery Scott equity strategist Michael J. Halloran, connected the stronger activity figures with resilient employment, ongoing corporate profit growth and the Federal Reserve’s assessment that the economy continues to expand at a solid pace.

The underlying S&P Global data showed that July’s acceleration was concentrated in services, the largest portion of the U.S. private economy. The flash Services PMI Business Activity Index increased to 53.6 from 51.2 in June, also reaching an eight-month high. Service providers reported stronger inflows of new work, improved confidence and increased activity associated with domestic customers.

Some companies cited spending connected with the FIFA World Cup, Independence Day celebrations and the United States’ 250th-anniversary events as contributors to demand. Increased investment in sales, marketing and product development also supported activity. Those factors helped hospitality and other consumer-facing businesses, although their temporary nature raises questions about whether the same pace can continue during the remainder of the quarter.

Manufacturing presented a more restrained picture. S&P Global’s flash U.S. Manufacturing PMI edged down to 53.8 from 53.9, while the manufacturing output index fell to 53.6 from 56.2. Factories continued expanding, but output and new orders grew at their slowest rates since March. Inventory accumulation also moderated after unusually strong increases in May and June, when some companies stocked materials and components to protect against potential supply disruptions and higher prices.

The divide between services and manufacturing matters because it shows that the headline acceleration was not uniform. Domestic demand supported both sectors, but exports of goods and services continued to decline. Businesses dependent on U.S. customers therefore reported better conditions than companies more exposed to weaker overseas demand or disruptions in international transportation and supply networks.

Employment was another encouraging element. Private-sector companies reported a modest increase in staffing, ending a two-month period of declining employment in the survey. Both manufacturers and service providers added workers. That result was consistent with weekly Labor Department data showing initial unemployment claims remained historically low, even though claims increased to 197,000 in the week ending July 25. The four-week average declined to 202,750.

The surveys nevertheless contained a significant warning for companies and financial markets: inflation pressures intensified. Input-cost growth reached a 14-month high, while the overall increase in selling prices was the strongest since August 2022. Service-sector charges rose at their fastest pace in nearly four years. Companies pointed to energy, shipping, tariffs, supplier pricing and transportation expenses as sources of higher costs.

Supplier delivery times also lengthened to the greatest degree in nearly four years. Longer delivery times can raise working-capital requirements and force businesses to hold more inventory, seek alternative suppliers or pay more for expedited transportation. For manufacturers, those pressures can reduce margins when customer demand is not strong enough to absorb price increases. For service providers, higher energy and operating costs can appear more quickly in consumer prices.

The combination of faster growth and stronger price pressures creates a mixed signal for monetary policy. The Federal Reserve voted on July 29 to maintain the federal-funds target range at 3.50% to 3.75%. Its statement said economic activity was expanding at a solid pace, productivity growth and capital investment were strong, and job gains had kept pace with the workforce. The central bank also said inflation remained elevated relative to its 2% objective, partly because of supply shocks affecting sectors including energy.

Three Federal Open Market Committee participants dissented in favor of a quarter-percentage-point increase, underscoring the debate over whether current rates are restrictive enough. July’s survey results may reinforce the concerns of policymakers who see persistent inflation as the larger risk. Stronger business activity reduces the immediate case for monetary easing, while faster price increases and supply disruptions could strengthen arguments for maintaining higher rates or considering additional tightening.

The new survey readings follow a government estimate showing real gross domestic product increased at a 1.5% annualized rate during the second quarter, down from 2.1% in the first quarter. Consumer spending, business investment and exports contributed to growth, while lower government spending and higher imports limited the headline rate. Investment in equipment and intellectual property remained a source of strength, reflecting continued spending on software, information-processing equipment and artificial-intelligence infrastructure.

S&P Global said its July survey was broadly consistent with economic growth running near a 2% annualized pace at the beginning of the third quarter. That estimate should be treated cautiously because the flash survey incorporates roughly 85% of the responses used in the final report and can be revised. Purchasing managers’ surveys also measure the breadth and direction of monthly changes rather than the dollar value of output.

Consumer data released July 31 provided another cautiously positive signal. The University of Michigan’s final July sentiment index rose to 55.2 from 49.5 in June, with improvements across income, education, wealth, age and political groups. The index remained about 11% below its year-earlier level, however, as households continued to report concerns about purchasing power and elevated prices. Year-ahead inflation expectations eased to 4.2% from 4.6% but remained high.

For businesses, the July evidence supports continued planning for growth while arguing against complacency. Stronger services demand, renewed hiring and improved confidence could sustain revenue and investment. At the same time, weaker exports, slower factory orders, expensive inputs and supply delays threaten margins. Companies may face a difficult balance between passing costs to customers and protecting sales volumes in a consumer economy that remains sensitive to prices.

For investors, the surveys reduce concern about an imminent collapse in activity but do not deliver an unambiguously favorable signal. Faster growth can support earnings, particularly among service companies and businesses benefiting from domestic investment. Persistent inflation can raise bond yields, keep financing expensive and pressure equity valuations. July therefore appears to have begun with better economic momentum, but the durability of that improvement will depend on whether demand remains firm after temporary summer events and whether supply and energy pressures ease.