ATTENTION! DEFICIT DISORDER: MACHINE SHOPS HIT 4-YEAR LOW

?Machine shops? business activity and financial strength both weakened sharply in January, to the worst levels since at least October 2004. The delinquency rate on machine tool leases is still about one-fourth of the delinquency rate on home mortgages and one-sixth of the sum of the mortgage delinquency rate and the ?homes in foreclosure? rate. (see Figure 1).

Both indexes were quite strong compared to the January PMI Index of 35.6 and the turmoil that started in automotive, housing, finance and the stock market and seems to be spreading throughout the economy. ?I expect both of our indexes to continue to decline due to the worldwide credit problem, the extreme conditions in the automotive industry and the cumulative impact of slowing sales on machine shop balance sheets,? commented Harry Moser, chairman of GF AgieCharmilles.

The Agie Charmilles Machining Business Activity Index, generated exclusively by Agie Charmilles, was inaugurated in October 2004 and is the oldest monthly index of business activity in the U.S. machining industries. The Index is created by surveying machine tool users concerning their current business level vs. three months earlier (October 2008). Any reading above 50 indicates that business activity has improved.

The Activity Index was down to 49 in January from 60 in December. Activity was consistent in all Regions (50) except in the Mid-West Region (45), and was strongest in Stamping Die Shops (54). Historical data, along with a detailed breakdown of results by geographic region and application/sector, is shown in Figures 2 and 3.

The Agie Charmilles/USBEF Machining Industry Financial Strength Index is generated by Agie Charmilles based on data provided by USBEF. 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.

The Financial Strength Index weakened to 185 in January 2009 from 227 in December 2008 and from 345 in January 2008, but was still far above January 2002?s 55, the worst reading on record. It peaked in mid-2007, approximately around the time the stock market peaked, but has been down monthly for the last five months and is now at the lowest level since July 2004.

In January, the 30-day delinquency rate on machine tool leases remained much lower than the credit card or the home mortgage delinquency rate (7.88 percent in 4Q08 per the Mortgage Bankers Association). Even the home foreclosure rate of 3.3 percent, not included in the delinquency rate, was greater than two times the machine delinquency rate. As shop profitability rises, liquidity rises, delinquencies fall and the Index rises. Historical data is shown in Figure 4.

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, 1-800-282-1336, Fax: 847-913-5340, www.gfac.com/us.

US Bancorp Equipment France: The Machine Tool Finance Group of US Bancorp Equipment Finance (USBEF) is 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.