Industry > Business & Financial Indexes
Housing Credit Crisis Helps Manufacturing
Stay Stable
Lincolnshire, Illinois, June 26, 2008 - "In July machine shops grew and the delinquency rate on machine tool leases dropped. The delinquency rate on machine tools is about one-sixth of the delinquency rate on home mortgages. (Fig. 1) In some ways, the housing credit crisis has provided some support for manufacturing, partially offsetting the impact of reduced production of household appliances and other housing related products. The crisis caused the Fed to cut interest rates. The lower interest rates help keep short-term corporate borrowing costs low and have helped produce a dramatic reduction in the value of the U.S. dollar vs. the currencies of most of our trading partners. The lower $ is the largest driver of our higher exports and lower imports of manufactured products. The lower $ also contributed to the increase in oil prices, dramatically raising shipping costs from Asia to the U.S. As an example, the cost to ship a container from Shanghai to Long Beach is up from $3,000 to 8,000 in the last 10 years. Similarly, the related increases in metal prices have reduced labor costs as a % of total product cost, reducing the relative advantage of the low-wage countries." commented Harry Moser, Chairman of Agie Charmilles.
(See Fig. 1)
| Type of Debt |
30 Day Delinquency Rate |
| Machine Tool Leases |
<1% |
| Home Mortgages |
6.35% |
| Fig. 1 |
|
The Agie Charmilles Machining Business Activity Index decreased to 59 in July from 61 in June. The Index is created by surveying machine tool users concerning their current business level versus three months earlier (April 2008). Any reading above 50 indicates that business activity has improved. Activity was strongest in the Midwest and South and in Medical companies. 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 strengthened to 400 in July 2008, from 385 in June 2008 and 55 in January 2002, the worst reading on record, but down from 526 in July 2007. The index shows a slow, 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. In June the 30 day delinquency rate on machine tool leases remained close to the lowest level on record, approaching 1%, which is much lower than the credit card or the home mortgage delinquency rate (6.35% in the first quarter 2008 per the Mortgage Bankers Association). Even the home foreclosure rate of 2.47% was 2 to 3 times the machine delinquency rate. As profitability rises, liquidity rises, delinquencies fall and the Index rises. Historical data is shown in Figure 3 and is available at the Agie Charmilles URL mentioned above.
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.
Business Machining Index by Geographic Region
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Survey responses are sorted geographically, using the same regional breakdown as does the USMTC (US Machine Tool Consumption) survey which is provided by AMT and AMTDA. |
Business Machining Index by Business Category
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Survey responses are also sorted by the primary Business Category of the respondent, defined by the kind of workpiece that is machined. |
About Agie Charmilles
Agie Charmilles, a Swiss company, is the North American leading supplier of wire EDM, CNC, diesinking and manual EDM systems and high speed/performance and 5-axis CNC milling machines. For more information on the company's products and services, contact Gisbert Ledvon, Agie Charmilles, 560 Bond St., Lincolnshire, IL 60069-4224, Tel: 1-800-CTC-1EDM. Gisbert.Ledvon@AgieCharmilles.us, Fax: 847-913-5340, or visit http://www.gfac.com/us.
About US Bancorp Equipment France
The Machine Tool Finance Group of US Bancorp Equipment Finance (USBEF) offers manufacturers and vendors, flexible and competitive lease financing for metal cutting, fabrication and plastics and wood manufacturing equipment. As a subsidiary of U.S. Bank, USBEF is one of the largest bank-affiliated equipment finance companies in the nation. Telephone (800) 255-8029 ext. 492.
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Business & Financial Indexes
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