The services and sectors of the economy are currently painting two different pictures. Last week the manufacturing reading declined for the second month in a row. This was especially concerning as it is only the second occurrence since 2009. In contrast, the services sector continued to expand. As a result, last week investors were on edge hoping that the September jobs report would provide some clarity.

The official September employment reading came in 9,000 jobs shy of expectations at 136,000 (145,000 expected). Surprisingly, the unemployment rate decreased two-tenths of a percent to a 50-year low of 3.5%. Though unemployment tumbled, the participation rate remained unchanged at 63.2% while the closely watched wage inflation figure was also unchanged. This was a mixed report and is unlikely to change the likelihood of further rate cuts by the Fed. It also continued to support the thesis that domestically, the economy remains strong.

Let’s take a look at the two different pictures being painted. Before we begin, a little background information is required. The US boasts one of the strongest developed economies in the world. It is widely known that over the years the economy has shifted from manufacturing-based to services-based. As a result, consumer spending now accounts for over 2/3rds of GDP while government spending and business investment making up the other 1/3rd. The Institute of Supply Management publishes two indices monthly to track both manufacturing activity and service activity. Both the ISM Manufacturing and ISM Non-Manufacturing indices have a baseline of 50. Readings above 50 signal that this portion of the economy is expanding, readings below 50 indicate that it is contracting.

The manufacturing portion of the economy, measured by ISM Manufacturing, is less insulated than the services portion and therefore more of a reflection of the global economy. Evident by the recent readings, the continuing trade wars, weakness in Europe, and an appreciating US dollar has had a strong effect on ISM Manufacturing readings. ISM Manufacturing registered a reading of 49.1 in August and 47.8 in September, the first time since August of 2009 that there have been two consecutive sub-50 readings in this sector. Three consecutive contractions technically result in a “manufacturing recession”.

In contrast, the more insulated services portion of the economy continues to expand. The ISM Non-Manufacturing (i.e. Services) reading for September stands at 52.6. Domestic economic tailwinds such as low mortgage rates, strong home sales, low unemployment, and an accommodative Fed continue to support this expansion.

There is no denying that the current expansion is getting “a little long in the tooth” but the domestic economy is still on stable footing. The US has never entered a recession with falling unemployment. Even with the recent weakness in manufacturing the CCM Economic Strength Index is still predicting 2% growth, which is considered the “new norm.”