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Approximately 126,000 U.S. manufacturers use about two million machine tools and employ 750,000 to 1,000,000 directly-related toolmakers, machinists, operators, programmers, etc. Almost all mid-size to large manufacturing companies use, and periodically purchase or lease, machine tools. "Machine shops’ financial strength and business activity both weakened in April, with business activity at the lowest level recorded since measurement started in 2004," says Harry Moser, the chairman of GF AgieCharmilles. "The 30-day delinquency rate on machine tool leases is still 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)."

For comparison, in April the Federal Reserve’s Capacity Utilization Index fell to 69 percent, the lowest on record, and the PMI Index improved to 40.1 with new orders at 47.2. 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 companies, at the least bottoming and, in many cases, starting to replenish inventories. The general downtrend in the U.S. dollar will tend to add further strength to manufacturing.

The Agie Charmilles Machining Business Activity Index was down at 47 in April, from 51 in March. The April reading is the lowest on record. The Index is created by surveying machine tool users concerning their current business level versus three months earlier (January 2009). Any reading above 50 indicates that business activity has improved. Activity was strongest in the Central region (55). The 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. The Agie Charmilles/USBEF Machining Industry Financial Strength Index weakened to 154 in April 2009, from 179 in March 2009. This was down from 400 in April 2008, but still far above January 2002’s 55, the worst reading on record. The index peaked in mid-2007, approximately when the stock market peaked, and has been generally declining since. Any reading above 100 indicates that 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 April, the 30-day delinquency rate on machine tool leases remained much lower than the 1Q09 credit card (6.61 percent per the Federal Reserve) or the April 2009 home mortgage delinquency rate (6.5 percent on the highest quality prime mortgages per the Mortgage Bankers Association). As shop profitability rises, liquidity rises, delinquencies fall and the Index rises. Historical data is shown in Figure 3.

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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GF AgieCharmilles, 560 Bond Street, Lincolnshire, IL 60069-4224, 800-282-1336, Fax: 847-913-5340, www.gfac.com/us.