BEFORE THE MELTDOWN

"I'm writing this on September 15. After the Dow dropped 504 points and Lehman Brothers declared bankruptcy, I was relieved to review the data and see that in August, machine shops grew and the delinquency rate on machine tool leases dropped. The delinquency rate on machine tool leases is about one-sixth of the delinquency rate on home mortgages," commented Harry Moser, chairman of Agie Charmilles (Lincolnshire, IL). "Manufacturing has held up amazingly well in the face of the turmoil in housing and finance (see Figure 1)."

The Agie Charmilles Machining Business Activity Index increased to 62 in August, from 59 in July. The Index is created by surveying machine tool users concerning their current business level versus three months earlier (May 2008). Any reading above 50 indicates that business activity has improved. Activity was strongest in the Central Region and in Medical and 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 and in the Business Machining Index by USMTC Region Tables August 2008.

The Agie Charmilles/USBEF Machining Industry Financial Strength Index, based on data provided by USBEF, strengthened to 417 in August 2008, from 400 in July 2008 and 55 in January 2002, the worst reading on record, but down from 588 in August 2007, the highest reading on record. The index has been slowly strengthening in 2007.

Any reading above 100 indicates that US 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 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.

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.