(Reuters) -U.S. business activity picked up pace in August, led by a resurgent manufacturing sector that saw the strongest growth in orders in 18 months, a purchasing managers survey showed on Thursday.

S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 55.4 this month, the highest level since December, from 55.1 in July. A reading above 50 indicates expansion in the private sector.

"A strong flash PMI reading for August adds to signs that US businesses have enjoyed a strong third quarter so far," Chris Williamson, chief business economist for S&P Global Market Intelligence, 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."

The improvement came largely from the manufacturing sector, where the flash PMI surged to 53.3 - the highest since May 2022 - from 49.8 in July and defying economists' expectations for a second month of contraction.

Manufacturing received a bump from new order activity at the highest since February 2024.

The services sector, meanwhile, eased back to 55.4 from 55.7 in July. Economists polled by Reuters had forecast the services PMI slipping to 54.2. 

The survey's measure of prices paid by businesses for inputs edged up to a three-month high of 62.3 from 61.3 last month, with both the services and manufacturing sectors reporting higher costs and companies citing President Donald Trump's tariffs as the key driver behind the increase.

"Companies across both manufacturing and service sectors collectively reported the steepest rise in input prices since May and the second-largest increase since January 2023," the report said. "Rates of increase accelerated in both sectors."

The survey's measure of prices charged by businesses for goods and services rose to a three-year high of 59.3 in an indication that companies are increasingly passing along the costs from higher tariffs to consumers. 

Employment also improved, the survey showed. The composite employment index for both manufacturing and services rose to 52.8, the highest since January, from 51.5 in July.