The ISM service index bodes well for positive revisions to fourth-quarter GDP growth. Specifically, the Institute of Supply Management (ISM) on Wednesday announced that its non-manufacturing, service sector index rose to 54.4 in December, up from 52.6 in November. This represents the third consecutive month of expansion and the fastest growth in the service sector in over a year. The new orders component surged to 57.9 in December, up from 52.9 in November, while the business activity component rose to 56 in December, up from 54.5 in November. Also impressive was that the new export orders component rose to 54.2 in December, up from 48.7 in November. Fully 11 of the 16 service industries that ISM surveyed reported expanding in December. Meanwhile, the ISM announced that their manufacturing index declined to 47.9 in December, down from 48.2 in November, which is another reason the Fed needs to cut key interest rates. This is the 10th consecutive month that the ISM manufacturing index has been below 50, which signals a contraction. Despite some green shoots, ISM reported that only 2 of the 17 industries surveyed reported expanding in December, which were Electrical Equipment, Appliances & Components, as well as Computer & Electronic Products. Clearly, data center demand is helping boost orders for these two industries.ADP reported on Wednesday that private payrolls rose by 41,000 in December, which was below economists’ consensus estimate of 48,000. In November, 29,000 private payroll jobs were lost, so in the past two months, ADP reported that only 12,000 private payroll jobs were created. In December, 5,000 manufacturing jobs were lost, while education/health services created 39,000 private jobs, followed by 24,000 jobs in leisure/hospitality. Interestingly, the West lost 61,000 private sector jobs in December, while the South led national job growth with 54,000 jobs.Residential investment was a 5.1% drag on GDP calculations in the second and third quarters. One of the keys to improving GDP growth moving forward is to shore up residential real estate markets, which remain weak due to high mortgage rates, higher insurance costs, as well as a supply glut in many key markets. Speaking of deflation, the prices of U.S. condominiums declined 1.9% in September and October according to the Intercontinental Exchange. High HOA fees and insurance costs were reasons cited for falling condo prices. According to the Intercontinental Exchange, in nine major metro areas, more than 25% of condos have fallen below their original sale price. Obviously, multiple Fed rate cuts can help shore up home prices, but for now, weak home prices are raising deflation concerns that the Fed needs to address.If deflation appears due to (1) weak housing/rental prices, (2) low crude oil prices, and (3) the deflation that we are importing from China and other weak economies around the world, the Fed is going to have to slash key interest rates 100 basis points pretty darn quick. President Trump is expected to nominate a new Fed Chairman soon, so existing Fed Chairman Jerome Powell is expected to become a lame duck. The Fed, in its December Federal Open Market Committee (FOMC) minutes, signaled that at least one more key interest rate cut of 0.25% was likely, but any deflation news will likely cause the Fed to slash key interest rates a lot more in the upcoming months.President Trump is anticipated to nominate a new Fed Chairman in January who will end the Fed’s restrictive policy and be much more pro-business. If Kevin Hassett, currently the head of the Council of Economic Advisors, becomes the next Fed Chairman, we will have an economic cheerleader leading the Fed, which will be very exciting.