SIGNS OF THE TIMES

"The usage of machine tools dropped and the delinquency rate on machine tool leases rose in September. However, the delinquency rate on machine tool leases is still about one-sixth of the delinquency rate on home mortgages (see Figure 1). Both indexes were quite strong, compared to the September SMI Index and the turmoil in housing, finance and the stock market," commented Harry Moser, Chairman of GF Agie Charmilles (Lincolnshire, IL).

The Machining Business Activity Index, generated exclusively by Agie Charmilles, decreased to 59 in September from 62 in August. The Index is created by surveying machine tool users concerning their current business level versus three months earlier (from June 2008). Any reading above 50 indicates that business activity has improved. Activity was strongest in the Central Region, the same as in August, and in EDM Job Shop companies. This Index was inaugurated in October 2004 and is the oldest monthly index of business activity in U.S. machining industries.

Historical data is shown in Figure 2. The Agie Charmilles/USBEF Machining Industry Financial Strength Index is based on data provided by USBEF. It weakened to 370 in September 2008, from 417 in August 2008 and from 588 in August 2007, the highest reading on record – but was still far above January 2002's 55, the worst reading on record. The index is flat YTD 2008, but down from a peak in mid-2007, approximately when the stock market peaked. Any reading above 100 indicates that US Bancorp Equipment Finance's (USBEF) machine tool lease payment delinquencies (a good measure of machine tool users' liquidity and consistent profitability) are at a rate below the average rate of 1990 to 1999.

In August, the 30-day delinquency rate on machine tool leases remained close to the lowest level on record, below 1 percent, which is much lower than the credit card or the home mortgage delinquency rate (6.35 percent in the first quarter 2008 per the Mortgage Bankers Association). Even the home foreclosure rate of 2.47 percent was two to three times the machine delinquency rate. As profitability rises, liquidity rises, delinquencies fall and the Index rises. Historical data is shown in Figure 3.

The approximately 126,000 U.S. companies that use machine tools have about 2 million machine tools and 750,000 to 1,000,000 directly related employees (toolmakers, machinists, operators, programmers, etc.). Almost all mid-size to large manufacturing companies use, and periodically purchase, or lease, machine tools. Thus, these indices give timely insight into the condition of U.S. manufacturing. The Machining Business Activity Index is a coincident indicator of this key manufacturing sector. The Financial Strength Index lags business activity and leads capital investment.

GF Agie Charmilles, 560 Bond Street, Lincolnshire, IL 60069-4224, 800-282-1336, Fax: 847-913-5340, www.gfac.com/us.

US Bancorp Equipment Finance: The Machine Tool Finance Group of USBEF offers manufacturers and vendors, flexible and competitive lease financing for metal cutting, fabrication and plastics and wood manufacturing equipment. As a subsidiary of U.S. Bank, USBEF is one of the largest bank-affiliated equipment finance companies in the nation. 800-255-8029 ext. 492.