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The National Association of Purchasing Management - Chicago compiles a survey and a composite diffusion index of business conditions in the Chicago area. Manufacturing and non-manufacturing firms are both surveyed, but until recently, market players have believed that the survey primarily covers the manufacturing sector. Readings above 50 percent indicate an expanding business sector. The NAPM - Chicago is considered a leading indicator of the ISM manufacturing index. Why Investors Care
Investors should track economic data like the NAPM - Chicago to understand the economic backdrop for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a moderate growth environment that won't generate inflationary pressures.
The NAPM - Chicago gives a detailed look at the Chicago region's manufacturing and non-manufacturing sectors. Many market players don't realize that non-manufacturing activity is covered in this index and tend to focus on the manufacturing side only. Consequently, market players consider this as a leading indicator for the ISM manufacturing survey. On its own, it can be viewed as a regional indicator of general business activity. Some of the NAPM - Chicago's sub-indexes also provide insight on commodity prices and other clues on inflation. The Federal Reserve closely watches this report because in its long history, it has proven to be a good indicator of business activity as well as inflation. As a result, the financial markets can be highly sensitive to this report.
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