Machine lease delinquencies far below home mortgage delinquencies

July 2, 2008

“In April machine shops did not grow but the delinquency rate on machine tool leases declined while staying at a low level about one-sixth of the rate on home mortgages,” Harry Moser, chairman of Agie Charmilles said.

“In contrast to the housing and mortgage markets, which are in such bad shape that they are severely damaging the rest of the U.S. economy and slowing down the world economy, machine shops are stable and machine tool leases are solid. Shops are uniformly in good financial shape judged by their ability to pay their bills. The stability, despite the housing market and oil prices, is helped by the lower U.S. dollar increasing competitiveness vs. imports and in export markets, strength in aerospace, power generation, oil field equipment and medical plus some work coming back from other countries, partially because shipping costs have gotten so high that companies are reopening or expanding U.S. facilities,” Moser added.

The 20-day delinquency rate for machine tool leases is less than one percent while home mortgage delinquency is currently 6.35 percent.

The Agie Charmilles Machining Business Activity Index ( decreased to 50 in April from 62 in March. The Index is created by surveying machine tool users concerning their current business level versus three months earlier (January 2008). 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 activity in U.S. machining industries.

The Agie Charmilles/USBEF Machining Industry Financial Strength Index was 400 in April 2008, up from 385 in March 2008 and up strongly from 55 in January 2002, the worst reading on record, but down from 526 in April 2007. The index shows a steady deterioration over the last 12 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 (a good measure of machine tool 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 1,000,000 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.