Machine tool lease delinquencies continue at all-time low

Agie Charmilles Machining Business Activity Index increased to 64 in June from 62 in May, marking the second consecutive month of an all-time low in machine tool lease delinquencies. “In June, shops got busier and the delinquency rate on machine tool leases was about one-third of the rate on home mortgages,” said Harry Moser, chairman of Agie Charmilles (www.gfac.com). “In contrast to the mortgage market, which appears to be in very bad shape, machine tool leases are solid. Shops are uniformly in good financial shape judged by their ability to pay their bills.”

The Agie Charmilles Machining Business Activity Index was created by surveying machine tool users concerning their current business level versus three months earlier Any reading above 50 indicates that business activity has improved. The index was inaugurated in October 2004 and is the only known monthly index of business in U.S. machining industries. Business activity was strongest in the Aluminum Extrusion Die Category and the South region.

In June, the 30-day delinquency rate on machine tool leases remained at the lowest level on record, about 1 percent, which is much lower than the 4.37 percent credit card (Source: Moody Credit Card Index) or the 4.95 percent home mortgage delinquency rates, according to the Mortgage Bankers Association.

The Agie Charmilles/US Bancorp Equipment Finance Machining Industry Financial Strength Index was 555 in June 2007, unchanged from May 2007, versus 357 in June 2006 and 55 in January 2002, the worst reading on record. Any reading above 100 indicates that US Bancorp Finance’s machine tool lease payment delinquencies (considered a good measure of machining tools users’ liquidity and consistent profitability) are at a rate below the average rate of 1990 to 1999. As profitability rises liquidity rises, delinquencies fall and the index rises.

The approximately 126,000 U.S. companies that use machine tools have about 2 million machine tools and 750,000 to 1 million 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.

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