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Definition 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 do 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 business conditions in the Chicago region, the pace of activity and where things are headed. It has been widely believed that the NAPM-Chicago primarily covers the manufacturing sector, although it also covers the service sector. In any case, this report has a big influence on the markets since many believe it is a leading indicator for the ISM manufacturing index. Some of the NAPM - Chicago's sub-indexes also provide insight on commodity prices and other inflation clues. The Federal Reserve closely watches this report because when inflation signals are flashing, policymakers can reset the direction of interest rates. As a consequence, the bond market can be highly sensitive to this report.