MACHINING BUSINESS ACTIVITY GREW FASTER IN JUNE

"In contrast to the housing and mortgage markets, which are in such bad shape that they are severely damaging the rest of the U.S. economy and slowing down the world economy, machine shops are stable and machine tool leases are solid. Shops are uniformly in good financial shape judged by their ability to pay their bills.

"The stability, despite the housing market and oil prices, is helped by the lower U.S. $ increasing competitiveness in both import and export markets, strength in aerospace, power generation, oil field equipment and medical. In addition, some work is coming back from other countries, partially because shipping costs have gotten so high that companies are reopening or expanding U.S. facilities to be near their customers" comments Harry Moser, Chairman of Agie Charmilles (Lincolnshire, Illinois). (See Figure 1)

The Agie Charmilles Machining Business Activity Index increased to 61 in June from 60 in May. The Index is created by surveying machine tool users concerning their current business level versus three months earlier (March 2008). Any reading above 50 indicates that business activity has improved. Activity was strongest in the Midwest and in Aerospace companies. The Index was inaugurated in October 2004 and is the only known monthly index of business activity in U.S. machining industries. Historical data is shown in Figure 2. Also, note that Figure 2-1 provides a detailed breakdown of results by geographic region and application/sector.

Figure 2-1

The Agie Charmilles/USBEF Machining Industry Financial Strength Index was unchanged at 385 in June 2008, down from 556 in June 2007 but up strongly from 55 in January 2002, the worst reading on record. The index shows a slow, steady deterioration over the last 12 months from a historic high in early 2007. Any reading above 100 indicates that U.S. Bancorp Equipment Finance's (USBEF's) 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 June the 30-day delinquency rate on machine tool leases remained close to the lowest level on record, approaching 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 2 to 3 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.

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