Machine shops growing more slowly

March 26, 2008

According to Harry Moser, chairman of GFAgie Charmilles, (, “In January machine shops grew less rapidly and the delinquency rate on machine tool leases remained unchanged at a low level about one-third of the rate on home mortgages. In contrast to the housing and mortgage markets, which are in such bad shape that they are severely damaging the rest of the economy, machine shops are growing and machine tool leases are solid. Shops are uniformly in good financial shape judged by their ability to pay their bills. The continued growth, despite the housing market and oil prices, is due to increased exports driven by the lower U.S. dollar, strength in aerospace, power generation, oil field equipment and medical plus some work coming back from China.” The Agie Charmilles Machining Business Activity Index decreased to 64 in January from 68 in December. The Index is 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 according to Agie Charmilles is the only known monthly index of business activity in U.S. machining industries. Business activity was strongest in the EDM Job Shop Category and the Central Region. . The Agie Charmilles/USBEF Machining Industry Financial Strength Index was 357 in January 2008, unchanged from December 2007, down from 417 in January 2007 but up strongly from 55 in January 2002, the worst reading on record. The index shows a slow but steady deterioration over the last 9 months from a historic high in early 2007. Any reading above 100 indicates that US Bancorp Equipment Finance’s (USBEF’s) machine tool lease payment delinquencies, considered a good measure of machine tool users’ liquidity and consistent profitability, are at a rate below the average rate of 1990 to 1999. In January 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 5.2 percent credit card or the 5.6 percent home mortgage delinquency rates. 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 1,000,000 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, a Swiss company, is a North American supplier of wire EDM, CNC, diesinking and manual EDM systems and high speed/performance and 5-axis CNC milling machines. The Machine Tool Finance Group of US Bancorp Equipment Finance (USBEF) offers manufacturers and vendors, lease financing for metal cutting, fabrication and plastics and wood manufacturing equipment.