FINALLY, SOME GOOD NEWS

Machine shops? financial strength and business activity recovered slightly in March while staying close to the lowest level of the last five years. The 30-day delinquency rate on machine tool leases remains about one-fourth of the 30-day delinquency rate on home mortgages and one-third of the 30-day delinquency rate on credit cards (see Figure 1).

Both indexes were quite strong compared to the March PMI Index of 36.3 percent and the problems in almost all sections of the economy. Financial strength is likely to resume its decline due to the cumulative impact of lower sales and difficult collections on machine shop balance sheets. However, there are increasing signs of inventories bottoming and the coming need for industry to start slowly ramping up orders and production.

The Machining Business Activity Index (generated exclusively by Agie Charmilles) was up slightly at 51 in March, from 50 in February. This Index is created by surveying machine tool users concerning their current business level versus three months earlier (December 2008). Any reading above 50 indicates that business activity has improved. Activity was strongest in the West (55) and in EDM job shops (54). This Index was inaugurated in October 2004 and is the oldest monthly index of business activity in the U.S. machining industries.

Historical data is shown in Figure 2, along with a detailed breakdown of results by geographic region and application/sector in Figure 3.

The Machining Industry Financial Strength Index (generated by Agie Charmilles based on data provided by USBEF) strengthened to 179 in March 2009, from 147 in February 2009. This was down from 385 in March 2008, but still far above January 2002?s 55, which was the worst reading on record. The index peaked in mid-2007 at approximately the same time the stock market peaked. It has been generally declining ever since.

Any reading above 100 indicates that U.S. 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 March, the 30-day delinquency rate on machine tool leases remained much lower than the 4Q08 credit card (5.72 percent per the Federal Reserve) or the home mortgage delinquency rate (7.88 percent per the Mortgage Bankers Association).

Even the home foreclosure rate of 3.3 percent, not included in the mortgage delinquency rate, was greater than the machine delinquency rate which includes machines in repossession. As shop profitability rises, liquidity rises, delinquencies fall and the Index rises. Historical data on this 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.

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

U.S. Bancorp Equipment Finance: The Machine Tool Finance Group of USBEF, a subsidiary of U.S. Bank, offers manufacturers and vendors, flexible and competitive lease financing for metal cutting, fabrication and manufacturing equipment at 800-255-8029 ext. 492.