State of the Economy

• Jobs: Job growth continues to be weak in Kentucky in 2026, following a lackluster year for jobs in 2025. There were an estimated 2,030,300 jobs in Kentucky in May 2026, down from 2,040,000 in May 2025. The national situation is more positive, with the U.S. adding an average of 92,000 jobs per month so far in 2026.
• Labor Force Participation: After a period of relative stability, labor force participation in Kentucky and the U.S. began falling in late 2025 and continued falling in the first quarter of 2026. In Kentucky, labor force participation has declined 0.8 percentage points since November 2025. 
• Inflation: The Federal Reserve’s preferred measure of inflation continues to trend well above its target of 2 percent, with tariffs serving as a primary driver. A Federal Reserve report shows that, absent the tariffs, the Fed’s preferred inflation measure would have been 2.3% instead of 3.1% in March 2026.
• Energy Prices: Conflict in the Middle East has caused volatility in oil, diesel, and gasoline prices. Gasoline is 31% higher than it was before the conflict. Diesel is 47% higher. 
• Consumer Sentiment: Consumer sentiment improved slightly in July, after falling consistently for several months. The initial estimate for July 2026, 54.4, is 9.4% higher than the final estimate for June; however, it is 12.6% lower than the estimate for July 2025 

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 July 23, 2026.

Job growth has weakened in Kentucky in 2026.
 

• Weak job growth in Kentucky: While Kentucky has seen some month-over-month job gains in 2026 so far, growth has been negative when measured as a percent change year-over-year. Between January 2026 and May 2026, manufacturing jobs declined by 4,800. 
• Consistent national job growth in 2026: At the national level, the first six months of 2026 have been positive overall. The US has added an average of 92,000 jobs per month so far in 2026. 
• National job growth slowed in 2025: The U.S. added 181,000 jobs last year. But job growth cooled consistently throughout 2025.
• Jobs in Kentucky: There were an estimated 2,030,300 jobs in Kentucky in May 2026, down from 2,040,000 in May 2025.
• How we look at jobs: The chart above displays job growth by showing the 12-month change in jobs as a percentage, which allows for more direct comparisons between Kentucky and the U.S. and removes the seasonality of month-to-month changes.

After a period of steadiness, labor force participation declined in 2026.

• Declining labor force participation: Labor force participation (the share of the 16+ population working or looking for work) was steady in 2025 in Kentucky at 58.3%, while it fluctuated around an average of 62.4% for the US. From November 2025 to May 2026, however, the rate fell by 0.8 percentage points in Kentucky and 0.7 in the U.S.
• Fewer employed and unemployed adults: At the national and state level, the decline reflects a reduction in both employment and unemployment. Less employment accounted for most of the decrease; however, considering that the unemployed accounted for at most 4.5% of the labor force in this period, a reduction in the number of unemployed played a proportionally large role.
• The gap between Kentucky and the U.S.: Kentucky has historically trailed the nation in labor force participation rates. The causes of this gap are multifaceted, but the key drivers are low rates of educational attainment in Kentucky and a high share of the population living in rural areas. Kentucky’s urban areas have much higher rates of workforce participation than its rural areas, at 59.9% vs. 52.4%, respectively.

Inflation continues to climb, driven largely by tariffs. 

• 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 May 2026—3.4%—was 0.6 percentage points higher than in May 2025. The increase in inflation shown since April 2025 is consistent with the effects of tariffs. 
• Tariffs have been driving inflation: The increase in inflation shown since April 2025 is consistent with the effects of 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%. 
• Iran's impact on inflation: The effects of the war with Iran on Core PCE in May are probably small, but still present. The spike in energy prices due to the war in the Middle East will be felt by consumers and businesses more quickly than they show up in core PCE, which excludes food and energy prices. Indirect effects will show up in various ways, such as higher shipping costs. Other inflation measures are already picking up these impacts.

Energy prices rose sharply after the conflict with Iran began.

• Indexing energy prices: This chart indexes prices for diesel, gasoline, West Texas Intermediate Crude oil (the standard benchmark for U.S. produced oil prices), and the international traded Brent Crude oil (the standard global benchmark) to February 23, 2026, just before the conflict with Iran started. 
• Prices and the Iran conflict: Energy prices are being heavily impacted by the conflict with Iran. Prices surged when the conflict began; declined once a temporary peace agreement was announced; and rose again when hostilities restarted.
• Gasoline and diesel prices: Gasoline is 31% higher than it was before the conflict. Diesel is 47% higher.
• Impacts: Diesel prices will have greater impacts on costs to businesses due to how they influence shipping expenses, while gasoline prices will disproportionately affect everyday households.

Consumer sentiment is rebounding after a series of all-time lows.
 

• Consumer Sentiment: The University of Michigan produces an index of consumer sentiment and updates it monthly.
• Recent improvement after a steady drop: The initial estimate for July 2026, 54.4, is 9.4% higher than the final estimate for June; however, it is 12.6% lower than the estimate for July 2025, and 4% lower than it was in February before the conflict with Iran began.
• Cost of living impacts: Cost of living and fuel prices continue to impact consumer sentiment, but consumers were slightly less pessimistic about the future than they have been. Survey director Joanne Hsu also notes that surveys for the initial July estimate were conducted between June 23 and July 13, but 70% of them were completed before hostilities resumed on July 7. If prices continue their current path, the final July estimates will likely be less optimistic.
• About the historic lows: Note that the fact that the current number is a historic low may be 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

The Kentucky Chamber hosted a webinar on June 9, 2025, featuring Vice President of Policy Charles Aull and Erica York, Vice President of Federal Tax Policy at the Tax Foundation, to explore how tariff and tax policies in Washington are shaping the economic landscape for Kentucky businesses.

Watch the webinar below:

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