State of the Economy

• Kentucky’s economy grew faster than the national economy last year. With an annual rate of 3%, Kentucky's GDP growth outpaced the national rate of 2.34% last year. Kentucky also outpaced its neighboring states.
• While the economy grew, the state lost jobs—but we are gradually recovering. Kentucky ended 2025 with 5,700 fewer jobs than it started with, but the state has added jobs so far in 2026, averaging 613 net new jobs each month. 
• The state and national labor markets are stable. At 4.7% and 4.2%, unemployment rates for Kentucky and the nation appear stable, with recent growth in employment. Other data show relatively low layoff activity but also slow hiring.
• Inflation remains elevated, with fuel prices playing a large role. Fuel prices are showing impacts across various measures of inflation. Core PCE, the Federal Reserve’s key measure of inflation, has been above 3% for five of the past six months. 
• Consumers expect long-term inflation. Concerns that inflation may remain elevated for the long term are keeping consumers pessimistic about their economic and financial futures.  

This information is meant to provide a monthly check-in on the most recent economic data in Kentucky and the U.S. It is not comprehensive. For additional information on Kentucky’s economy, we recommend resources like Blueprint Kentucky’s annual report on Kentucky’s Rural Economy and the UK’s Annual Economic Report.

Here are more details on the state of the economy as of October 20, 2026.

Kentucky’s economy grew faster than the nation’s last year. 
 

• Kentucky GDP outpaced the nation in 2025. Last year, Kentucky’s economy grew 3 percent. This growth was stronger than the national rate of 2.34 percent and stronger than Kentucky’s 2024 rate of 1.8 percent. Kentucky also grew faster in 2025 than its competitors, including Indiana (1.9%), Tennessee (2.1%), and Ohio (2.4%). Key growth areas last year were finance, insurance, and real estate. Real GDP in Kentucky was estimated at $239.5 billion in 2025, up from $232.5 billion in 2024.
• Growth slowed in late 2025 and early 2026. After nine quarters of positive GDP growth in Kentucky, Q4 of 2025 turned negative, with declines in manufacturing and government. A negative Q1 in 2026 was followed by an uptick in Q2 of 2026.
• State-level GDP data can be volatile. Readers may note the significant growth in Q2 of 2025, but it is normal for state-level GDP data to have quarterly highs and lows. Looking at annual averages helps smooth out these spikes.
• AI investment is contributing to national GDP growth. National GDP growth in recent quarters is consistent with investments related to AI, with strong investment in information processing equipment and software since Q1 of 2025.

Unemployment has been stable since June.

• Kentucky unemployment holds steady after an uptick: The preliminary estimate for August 2026 suggests that the unemployment rate in Kentucky has stayed around 4.7%. Unemployment rose in the state from March 2026 to June 2026.
• National unemployment is also steady: So far in 2026, the national unemployment rate has been approximately where it was in the summer of 2025. It fell slightly in July to 4.1%, the lowest since June 2025, and changed very little in August. The rate then ticked up to 4.2% in September.
• Factors shaping unemployment: When unemployment is broken out by reasons for unemployment, the biggest change in September was a decrease in unemployment due to leaving a job. Unemployment due to reentrants and new entrants rose. 
• Employment and labor force participation are increasing. As the unemployment rate has been largely stable in the past three months, the share of adults who are employed has risen. In Kentucky, the employment-to-population ratio was 55.1% in August. Nationwide, it was 59.1% in August. Labor force participation has also increased in recent months in both the state and nation, reversing a decline in the first half of the year. This could reflect workers’ confidence in finding new jobs.
• County-level variations: Unemployment rate estimates are available at the county level in Kentucky, but they are not seasonally adjusted. County unemployment rates vary widely across the state, with certain counties in eastern Kentucky reaching as high as 8.5%. For comparison, Kentucky’s non-seasonally adjusted unemployment rate for August was 4.3%. It is important to note that county-level estimates are not produced using the same methodology as state or national estimates because few, if any, households are interviewed in smaller counties.
• What “unemployment” means: Unemployment is defined as not being employed and actively searching for a job. People who don’t have jobs and aren't actively searching are counted as out of the labor force. The unemployment rate can rise or fall as people have an easier or harder time finding a job, but it can also fall if people without jobs leave the labor force or rise if more people enter it. 
• Measuring layoffs: The unemployment rate is often not an ideal way to measure layoff activity. Unemployment insurance claims and JOLTS data are better alternatives. Claims increased more in Kentucky than in the US for most of 2025; however, claims have fallen in both the state and the nation since January 2026, and initial claims are now lower in Kentucky than in the US. JOLTS data show that layoffs and hiring are low in the US.

Inflation has cooled slightly but has been above 3% for 5 of the past 6 months. 

• Core PCE & the Fed: Core Personal Consumption Expenditures (PCE), which excludes food and energy, is the Federal Reserve’s preferred inflation metric. The Fed targets 2% inflation, which the US has not seen since 2021. Food and energy are excluded because they tend to be more volatile.
• Current rates: Inflation in August 2026—at 3.0%—was nearly 0.16% higher than August 2025. The 12-month percentage change in August 2026 reflected a month-to-month price increase of 0.2%, similar to the July increase.
• Tariffs have contributed to inflation: The increase in inflation shown from April 2025 to March 2026 was consistent with the effects of high, and often volatile, tariffs. Analysts at the Federal Reserve, for example, estimate that tariffs accounted for 0.8 percentage points of the March 2026 Core PCE reading. Absent tariffs, the reading that month would have been 2.3% instead of 3.1%. 

Rising fuel prices are contributing to inflation. 

• Fuel prices continue to be elevated. The cost of gasoline is 42% higher than it was before the conflict with Iran began. Due to global refining disruptions, diesel prices began rising in mid-June, diverging from movements in already elevated crude oil prices. Diesel is 88% higher than before the Iran conflict began, due to combined effects in oil and refining. As of 10/15/2026, the national average price for a gallon of regular gas is $4.334, compared to $3.067 one year ago. Diesel is $6.317 now, vs. $3.655 a year ago. In Kentucky, regular is $3.980, and diesel is $6.120, compared to $2.699 and $3.364 one year ago.
• Different measures of inflation illustrate the impacts of rising fuel prices. 
  • PPI – Intermediate Demand reflects the prices businesses are paying for goods they purchase as inputs. This measure, at 14.2% in September, is the highest since August 2022 (when CORE PCE was 5.4%).
  • PPI – Final Demand shows the prices firms in the US are charging consumers for goods and services. This measure, at 6.3% in September, is the highest since December 2022 (when CORE PCE was 5%).
  • Headline CPI, which includes food and energy, registered at 3.7% in September and 4.1% in May 2026, the highest reading since April 2023. 
  • Core PCE and CPI, which exclude food and energy, are less immediately affected by fuel prices; however, there is increasingly evidence that continued high energy prices are affecting core inflation. For example, PCE for transportation services went up 1.4% in August. PPI—Final Demand for transportation and warehousing, which affects most consumer goods increased 3.4% in September.

Expectations for long-run inflation have consumers in a sour mood. 
 

• Consumer sentiment. The University of Michigan produces a consumer sentiment index and updates it monthly.
• A decline after a rebound. The preliminary estimate for October 2026, 46.3, is 3.8% lower than the final estimate for September, 14.6% lower than the estimate 12 months earlier, and 20% lower than it was in February before the conflict with Iran began.
• Prices are the driving factor. Concerns about the cost of living, including fuel prices, continue to drive sentiment. Expectations for long-run inflation have also been increasing, and long-run expectations are more likely to affect behavior than inflation consumers see as transitory.
• About the historic lows. Note that the May number may be a historic low due to changes in how the survey was conducted between April and July of 2024. The fact that the index has been declining is much more reliable and relevant than comparisons to historic values.

On this web page, we provide economic updates on Kentucky and the United States, using a range of key metrics from the U.S. Department of Labor, U.S. Bureau of Economic Analysis, the University of Michigan, the St. Louis Federal Reserve, and the U.S. Chamber of Commerce. All data is analyzed by the Kentucky Chamber Center for Policy and Research. On this page, we cover jobs, unemployment, unemployment insurance claims, hiring, workforce participation, inflation, consumer sentiment, and small business optimism.  

Sources
Federal Reserve Bank of St. Louis, Federal Reserve Economic Data
MetLife and U.S. Chamber of Commerce, Small Business Index
University of Michigan, Survey Research Center, Surveys of Consumers
U.S. Bureau of Economic Analysis, Personal Consumption Expenditures Price Index
U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics
U.S. Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey
U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Data
U.S. Federal Reserve, Economy at a Glance – Inflation (PCE) 
ADP Employment Report
Carlyle
Revelio Labs