US Services Activity Expands at Fastest Pace in Over a Year

The U.S. services sector expanded at its strongest pace in over a year in December 2025, with the Institute for Supply Management's (ISM) Services PMI rising to 54.4, up from 52.6 in November according to data. This marked the highest reading since October 2024 and exceeded expectations of 52.3. The result indicated robust activity across the services economy, with all subindices in expansion territory for the first time since February as reported.

Key subindices showed strong gains. Business activity/production increased to 56, new orders hit 57.9, and employment rebounded to 52. Meanwhile, imports and new export orders also expanded. Price pressures eased slightly to 64.3, though input costs remained elevated according to PMI data.

CoStar Group, a major player in real estate marketplaces and analytics, reported significant financial performance for 2026. The company's Adjusted EBITDA is expected to reach $740 million to $800 million, a 20% margin at the midpoint. The company also announced a $1.5 billion share repurchase program and outlined a medium-term target of $1.25 billion in Adjusted EBITDA by 2028 according to company statements.

Why the Move Happened

The services sector expansion was supported by end-of-year holiday seasonality and preparations for 2026. Companies cited improved business activity, increased new orders, and a rebound in hiring as key factors according to analysis. The rebound in employment is particularly notable, as the sector had previously seen contractions in hiring as noted in PMI data.

CoStar Group attributed its strong performance to a disciplined capital allocation strategy and the continued rollout of AI-driven efficiencies. The company also emphasized strategic growth in its residential platform, Homes.com, which has seen a 337% increase in subscribers since early 2024 according to company reports.

How Markets Responded

The positive data from the ISM Services PMI reinforced expectations of a strong finish to 2025 for the U.S. economy. Markets interpreted the data as a sign of resilience despite ongoing challenges like the government shutdown and affordability issues according to market analysis.

Equity futures, including the Dow Jones, S&P 500, and Nasdaq 100, were slightly higher in the days following the data release. Investors were also reacting to geopolitical developments, including the U.S. military operation in Venezuela .

CoStar Group's shares were not immediately impacted by the economic data, but the company's robust outlook reinforced confidence in the real estate technology space. Analysts highlighted the company's ability to scale AI and reduce capital intensity as key advantages for long-term growth according to investment research.

What Analysts Are Watching

Analysts are now turning attention to the upcoming U.S. employment report for December 2025, scheduled for release on January 9, 2026. The data will provide the first major insight into the labor market in the new year and could influence Federal Reserve policy decisions according to market reports.

The Federal Reserve has signaled potential rate cuts in 2026, but a stronger-than-expected jobs report could delay or slow that process. Market participants are also closely monitoring the performance of high-growth tech stocks, which have seen increased volatility amid shifting rate expectations as reported.

The continued expansion of the services sector also raises questions about inflation. While price pressures have eased, input costs remain elevated, and tariffs are a recurring concern for companies. Analysts note that a combination of slower growth and persistent inflation could challenge economic momentum in the early part of 2026 according to economic analysis.

As the new year unfolds, investors will be watching for signs of sustained expansion in the services sector and whether the Federal Reserve's policy path aligns with market expectations. The ISM data and related economic indicators will remain key benchmarks for assessing the trajectory of the U.S. economy as indicated by economic data.