The War between Value and Growth: Is the PMI Change Sounding the Trumpets at this Stage in the Battle?

By Dr. Leila Heckman, PhD, August 10, 2020

The July 2020 ISM’s Purchasing Manufacturing Index (PMI) published on August 3, 2020 was 54.2, and the 3-month change in the PMI was a whopping +31%. Several weeks ago, I published a research note which tried to answer the question whether Value or Growth tended to do better as the U.S. recovered from a recession using the 3-month change in the PMI index of 10% or greater as an indicator of when Value might start outperforming Growth.

Of course, in general, one does not know the exact dates a recession starts or ends until after it is over. Most of the time the PMI 3-month change is a small number (both positive and negative). During a recession, the 3-month change can become a large negative percentage, but when the economy is coming out of a recession, the 3-month change can become a large positive percentage. The signal that was used in the previous analysis was the first month in which the 3-month change in the PMI turned positive 10% or more after the start of a recession. The study measured the performance of the Russell Value and Growth Indexes over the next 12 months. Since 1979, using this PMI based signal for when to start measuring performance of the two Indexes, the Russell Value Index outperformed the Russell Growth Index in 4 out of the 5 recessions. The only exception was during the aftermath of the oil shock-led recession of 07/90 - 03/91. The average outperformance of the Russell Value Index over the Russell Growth Index over the 5 recessions was 4.8%.

Outperformance 1

With the 3-month change in the PMI at +30% at the beginning of August and based on the analysis of previous recessions, this signal could be pointing to the possibility of Value outperforming Growth.


1For the recession of 07/90 – 3/91, 3-month PMI change of 9.1% was used.

Of course, in general, one does not know the exact dates a recession starts or ends until after it is over although through most of it, we know that we are in a recession. The question is when to start measuring the performance of Value vs Growth as the economy comes out of the recession. For that, we have looked to the 3-month change in the PMI. Most of the time the PMI 3-month change is a small number (both positive and negative). During a recession, the 3-month change can become a large negative percentage, but when the economy is coming out of a recession, the 3-month change can become a large positive percentage. For measuring the relative performance of Value vs Growth coming out of a recession, the signal we use is the first month in which the 3-month change in the PMI turns positive 10% or more. This positive change can happen during a recession or shortly after it ends. Once we have the PMI signal, we measure the performance of each of the Indexes over the next 6-months and the next 12-months.


1For the recession of 07/90 – 3/91, 3-month PMI change of 9.1% was used.

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