Dive Brief:

• U.S. business activity and confidence surged in July to an eight-month high, prompting companies to hire for the first time in three months, S&P Global said Friday.
• Services fueled most of the gains as manufacturing growth slowed, S&P Global said, noting that the war with Iran pushed supplier delays to the highest level in nearly four years and input cost inflation hit a 14-month high, according to S&P Global.
• “July saw a concerning intensification of supply chain delays and accompanying renewed upturn in price pressures, constraining growth and subduing demand,” Chris Williamson, chief business economist at S&P Global, said in a statement. “Events over recent days in the Middle East will have only further exacerbated these supply chain and price worries and raise downside risks to the near-term outlook for the economy, hinting that July’s upturn may not be the start of an improving trend.”

Dive Insight:

The newest S&P Global survey of purchasing managers suggests that gross domestic product growth will accelerate to 2% this quarter from 1.2% in Q2, Williamson said.

“However, some of this improvement may prove short-lived as July saw hospitality spending boosted by the FIFA World Cup and USA 250 anniversary activities,” he said. “It was also worrying — though not unexpected — to see manufacturing growth weaken as some of the stock building seen in prior months showed signs of fading.”

The economy has shown remarkable resilience despite the surge in oil prices since the flare-up of fighting in the Persian Gulf earlier this month, according to Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.

“We expect the cracks to show soon, however, given that households are no longer receiving bigger-than-usual tax refunds, and the energy shock is intensifying again,” Allen said.

Since July 2, futures for Brent crude oil, the global benchmark, have jumped 36%, from $70.85 per barrel to $96.62 per barrel.

Households will likely feel a pinch this quarter from higher energy prices, Allen predicted.

Indeed, higher fuel costs pushed up selling prices this month at the fastest rate in nearly four years, S&P Global said.

“Consumer goods prices probably will see a hot run of monthly increases over Q3, as some cost pressures linked to the energy shock are passed through,” Allen said. “But a sustained period of sharply higher core goods inflation still looks unlikely for the time being.”

Domestic demand fueled growth in both services and manufacturing this month as exports of goods and services declined, S&P Global said.

Along with the World Cup competition and July 4 celebrations, increased investment in sales, marketing and product development spurred growth, according to S&P Global.

“Manufacturers again reported precautionary stock building amid concerns over prices and supply availability linked to the war in the Middle East, though fewer such reports helped explain the slowdown in manufacturing growth,” S&P Global said.

Optimism among manufacturers slumped to the lowest level since October, “reflecting weaker demand growth, global trade worries, geopolitical uncertainty, tariffs and high costs,” according to S&P Global.