Cover Story · MFGCalcs Magazine, Issue 1, November 2026
The $1 Trillion Squeeze
American manufacturers just earned profits at an annual rate of more than $1 trillion, a first in 25 years of records.
By Abe Lathrop. From MFGCalcs Magazine, Issue 1, November 2026, page 12.
For a few months, an equipment producer in the Federal Reserve Bank of Minneapolis’ district paid more for steel and kept charging its customers the same, hoping the metal would come down. In October, quoted by the bank in the Fed’s Beige Book, it said how that ended: “We had tried absorbing steel price increases for a few months hoping they would go down or at least stabilize. They continued to increase so we finally did implement a price increase.”
Its year and American industry’s year barely look related. In the second quarter of 2026, manufacturers earned profits at an annual rate of $1.05 trillion, according to the Bureau of Economic Analysis, a level no quarter in the bureau’s figures, which begin in 2001, had reached. Fabricated metal products, the industry that includes the country’s machine shops, took less than 3 cents of every dollar of profit manufacturers added over the year.
Petroleum refiners carried the total over the line. They earned at a rate of $155 billion, more than seven times their pace a year earlier; take away their jump from the first quarter, and manufacturers’ pace falls short of a trillion. An annual rate is a quarter’s profit, adjusted for the season and multiplied by four, and the bureau’s measure takes out the profit a company books only because inventory it already held got more expensive.
Follow the trillion and it does not spread out. It pools. Of every dollar added over the year, about 73 cents landed in three industries: computers and electronics, chemicals, and petroleum and coal products. Computer and electronics makers alone earned more than a quarter of the trillion, and chemical makers had their best quarter in the bureau’s figures.
Most of the trillion landed far from the shops that buy metal and sell parts. They stand on the other side of the ledger, and for them the same three months brought the tightest price squeeze since February 2022.
A shop that buys metal and sells parts lives between two sets of prices, and this year they came apart. In September, raw materials that had cost $100 a year earlier cost about $119, by a blend of eight Bureau of Labor Statistics producer price indexes: steel and other metals, resin, chemicals, lumber and paper. Finished metal goods that had sold for $100, blended from the bureau’s prices for machinery, foundry and forge products, and fasteners, fetched about $103.
The worst of it came in the record quarter. Materials rose in every month from April through June, and by June the blend stood higher than at any time in its history, above even its peak in the spring of 2022. Finished metal goods ended June below where they stood in March. Copper, among the metals in the blend, averaged more in June than in any month in International Monetary Fund data going back to 1992.
In every month since March 2025, materials have risen faster than finished metal goods. By June the gap between the two blends’ yearly changes was five times as wide as when it opened, and it has narrowed only a little since.
A machinery maker answering a September survey by the Federal Reserve Bank of Dallas blamed the steel mills: “While tariffs have allowed some industries to prosper and regain domestic position in their respective industries, the steel industry has abused the opportunity, and mills are withholding capacity to drive prices up. Yes, data centers have consumed much of the available stock, but other projects are having to be delayed due to the concentration of steel providers controlling stock and mill runs to the detriment of fabricators.” That is one customer’s view of its suppliers, not a finding: the price indexes record what steel cost, not why.
In August a respondent to the Federal Reserve Bank of Kansas City’s manufacturing survey put the bind in two sentences: “Manufacturers are starting to lower inventories. Numerous price increases have been coming from input suppliers but are difficult to pass on.”
Catching up has never been automatic. In the past, finished prices followed materials only part of the way, and loosely, by MFG Calcs’ Cost Pass-Through Index. Some manufacturers are passing the cost on anyway. A plastics and rubber products maker answering the Dallas Fed’s survey in August wrote: “We took a bath last year trying to figure out tariff uncertainty. We have clawed back a little improved operating margin thanks to price increases this year.”
The last squeeze this tight ended fast. In February 2022 the gap between the blends was almost exactly as wide as it would be this June. By May finished metal goods were rising faster than materials.
For almost three years, the arithmetic ran the shops’ way. In every month of 2023 materials cost less than a year earlier while finished metal goods sold for more. In those years fabricated metal makers had their five most profitable quarters in the bureau’s figures, the best of all at the end of 2023.
In more than three decades of monthly prices, the gap has been this wide in only 15 other months, across three earlier squeezes. Each closed, and each from the materials side: materials’ yearly rise slowed by about 20 percentage points, while finished metal goods sped up by a few points at most. The last closed fastest; the slowest took 20 months, from April 2010. One did not stay closed: the gap that closed in July 2005 reopened three months later and stayed open for more than a year and a half.
Finished metal goods have barely moved since January. Since June, the gap has narrowed from the materials side only. If it closes the way the others did, it closes when materials come down, and none of the precedents says when.
Steel has not come down. The bureau’s price index for steel mill products rose in every month of this year through September, when it stood 28% above a year earlier. The equipment producer in the Minneapolis district stopped waiting: after months of taking the increases itself, it raised its prices.
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Last reviewed 2026-10-26.