Fifth District Manufacturers Are Paying 6.22% More and Charging 4.09% More. That Gap Has Held for Five Months.

A manufacturer's margin is the difference between what it pays for inputs and what it can charge for output. In the Federal Reserve Bank of Richmond's district, that difference has been running against firms by roughly two percentage points a month since spring, and it did not close in August.

The wedge

The Fifth District Survey of Manufacturing Activity, released August 25, 2026, reports prices paid growing at an annualised 6.22% and prices received at 4.09%. The gap is 2.13 points. It is the fifth consecutive month at that order of magnitude.

• April: prices paid 6.40%, prices received 4.73% — a gap of 1.67 points.
• May: 5.96% and 4.21% — 1.75 points.
• June: 6.99% and 4.57% — 2.42 points.
• July: 6.08% and 3.96% — 2.12 points.
• August: 6.22% and 4.09% — 2.13 points.

Firms expect it to narrow. Six-month expectations put prices paid at 4.34% and prices received at 3.69%, a gap of 0.65 points. That is an expectation, not an outturn, and the outturns have not narrowed for five months.

The headline hid the movement

Richmond's composite index went from 5 in July to 4 in August, and the survey text says manufacturing activity changed little. The components did not. Shipments strengthened, from 8 to 11. Almost everything forward-looking weakened.

• Backlog of orders: +4 to −7.
• Employment: +2 to −2.
• Capital expenditures: 0 to −5.
• Local business conditions: 10 to 4.
• New orders: 5 to 3.
• Raw materials inventories: 1 to 9, while finished goods inventories fell from 9 to 3.

Read together, that is a district shipping out of a backlog rather than building one, stocking inputs faster than it is clearing output, and pulling back on hiring and capital spending. Wages remain elevated at 26, down from 28, and skill availability is still negative at −13.

What the hard data says

The Census Bureau's advance durable goods report for July, released August 26, is the counterweight. New orders rose 1.1% to $339.3 billion. Shipments rose 1.0% to $334.7 billion, up in ten of the last eleven months. Unfilled orders rose 0.6% to $1,599.9 billion, up in 24 of the last 25 months — a record backlog, which sits awkwardly beside Richmond's backlog index at −7.

The composition is where the caution is. Transportation equipment rose 2.3% to $116.2 billion and did most of the work; excluding transportation, orders rose 0.4%. Nondefense capital goods excluding aircraft — the series usually taken as the cleanest read on business investment intent — rose 0.2%, to $85.946 billion on a seasonally adjusted basis. Computers and electronic products orders fell 1.1%. Total inventories rose 0.4% to $604.4 billion, a tenth consecutive monthly increase; primary metals inventories have now risen for seventeen straight months.

And then Friday

On August 28 the Chicago Business Barometer fell to 47.1 from 57.6, a drop of 10.5 points, its first sub-50 reading since April and its lowest since December. Reported consensus was in the high 50s, though the two sources we read give different figures for it — 57.9 and 59.0.

How to read it

Two readings fit. One is that survey diffusion indexes are noisy, that a record order backlog and ten months of rising shipments are the real economy, and that August's internals are a wobble. The other is that firms absorbing a two-point cost-price gap for five months eventually stop hiring and stop buying equipment, and that the August internals are where that starts to show. The first test of which is right arrives with the August manufacturing and payroll data in the first week of September. Until then this is a signal, not a turn.