Private-Sector Output Growth Accelerates Even as Tariffs Boost Costs, Selling Prices, S&P Survey Shows

01:57 PM EDT, 08/21/2025 (MT Newswires) -- US private-sector output growth reached an eight-month high in August, though tariff-related cost pressures drove the fastest growth in selling prices over the past three years, according to S&P Global's (SPGI) flash purchasing managers' index released Thursday.

The composite output index advanced to 55.4 this month from 55.1 in July, compared with a 53.5 reading in a survey compiled by Bloomberg. The 50-point mark separates expansion from contraction.

"A strong flash PMI reading for August adds to signs that US businesses have enjoyed a strong third quarter so far," S&P Global Market Intelligence Chief Business Economist Chris Williamson said in a statement. "The data are consistent with the economy expanding at a 2.5% annualized rate, up from the average 1.3% expansion seen over the first two quarters of the year."

However, tariffs were again cited as the main driver of sharply higher costs, which propelled selling prices to a three-year high amid stronger demand conditions.

Official data showed earlier this month that consumer inflation in the US slowed down in July on a sequential basis, while the annual core rate jumped above 3%.

"Companies have consequently passed tariff-related cost increases through to customers in increasing numbers, indicating that inflation pressures are now at their highest for three years," Williamson said. "The resulting rise in selling prices for goods and services suggests that consumer price inflation will rise further above the (Federal Reserve's) 2% target in the coming months."

Markets are pricing in a roughly 74% probability that the Federal Open Market Committee will reduce interest rates by 25 basis points next month, down from 82% on Wednesday, according to the CME FedWatch tool. The remaining odds are in favor of another pause in September.

The manufacturing PMI swung into expansion territory, rising to the highest level since May 2022, at 53.3, while the gauge for services activity ticked down to a two-month low of 55.4 from 55.7 in July. Wall Street was looking for readings of 49.7 and 54.2, respectively.

"Combined with the upturn in business activity and hiring, the rise in prices signaled by the survey puts the PMI data more into rate hiking, rather than cutting, territory according to the historical relationship between these economic indicators and FOMC policy changes," Williamson said.

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