Manufacturing PMI's shrinks in Dec13.

Purchasing Managers Index (PMI) measures the state of economic activity. It is based on a survey of private sector firms. Any value above 50 indicates expansion in economic activity while a reading below 50 indicates contraction. As can be seen from today's chart, the PMI index for the month of December fell to 50.7. This was mainly due to sluggishness in domestic orders. While the reading was above the benchmark figure of 50 it fell when compared to the last month. This indicates that the recovery is still lagging and achieving higher growth in future could be a challenge. However, the good news is that new export orders have picked up and inflation is showing signs of moderation. This may prompt RBI to lower rates in order to revive the economy. However, slowdown in new orders, as indicated in the survey, is not a good a sign. It shows industrial capex is still lagging. Order back log has also increased which means there is inventory buildup. Unless RBI lowers the interest rates, new orders will continue at snail pace as demand will remain weak. This will delay the capex cycle and hurt economic growth.