State of the Economy

• Jobs: Job growth continues to be weak in Kentucky in 2026, following a lackluster year for jobs in 2025. The state has averaged only 183 new jobs per month so far in 2026. The national situation is more positive, with the U.S. adding an average of 60,857 jobs per month so far in 2026.
• Labor Force Participation: The share of adults with jobs has declined statewide and nationally, while unemployment has risen in Kentucky and slightly decreased in the U.S. Layoff activity has been stable. 
• 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: International conflict has caused volatility in oil, diesel, and gasoline prices. Gasoline is 36% higher than it was before the conflict with Iran began. Diesel is 65% higher. 
• Consumer Sentiment: Consumer sentiment fell again in July after a mild rebound. Driving the fall were concerns over reduced purchasing power due to inflation and worsening expectations for the economy.

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 August 16, 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. The state averaged only 183 new jobs per month between January 2026 and June 2026.
• Manufacturing employment: Between January 2026 and June 2026, Kentucky manufacturing jobs declined by 5,100. 
• Positive but possibly slowing national job growth in 2026: At the national level, the first seven months of 2026 have been positive overall, but growth has slowed since the spring. The US added an average of 60,857 jobs per month so far in 2026. The US added only 20,000 jobs in June and lost 23,000 in July.
• National job growth was weak in 2025: The U.S. added only 181,000 jobs last year, and job growth cooled steadily throughout 2025.
• Jobs in Kentucky. There were an estimated 2,030,400 jobs in Kentucky in June 2026, down from 2,037,000 in June 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.

The share of adults with jobs is falling.

• Declining employment. The share of the adult population that is actively employed has declined in Kentucky and the nation since December 2025. In Kentucky, the employment-to-population ratio has fallen from 55.7% to 54.8%, the lowest it has been since August 2021.  
• Declines across all age groups. At the national level, the decline in the employment-to-population ratio has been observed across all age groups but has been most pronounced among the 16-24-year-old population. 

Unemployment is rising in Kentucky, while stable nationwide.

• Diverging unemployment trends. Between March 2026 and June 2026, Kentucky’s unemployment rate rose from 4.2% to a preliminary estimate of 4.7%. This was driven by an increase of approximately 10,000 Kentucky adults looking for work during this period. Meanwhile, national unemployment has declined slightly, standing at 4.1% in July 2026. 
• Layoffs are not a likely explanation. While the employment-to-population ratio is declining and unemployment is rising (at least in Kentucky), layoffs are not a likely explanation. Data related to layoffs and unemployment insurance claims have not shown any significant increases during this period. More data and time will be needed to fully understand the factors shaping the labor markets in Kentucky and the nation so far in 2026. 
• What unemployment means. Unemployment is defined as not being employed and actively searching for a job. People who don’t have jobs and are not actively searching are counted as being out of the labor force. The unemployment rate can fall or rise 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 the labor force. This is why we should also look at other labor market metrics like the employment-to-population ratio alongside the unemployment rate. 

Tariffs have contributed to rising inflation.

• 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 June 2026 – 3.3% – was 0.5 percentage points higher than June 2025. The decrease of 12-month % change in June 2026 corresponded in a slower month-to-month increase in prices. The monthly increase was 0.1% in June, compared to 0.3% in May. Overall, the most recent three months show slowing core inflation.
• 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 impact on inflation: The effects of the war with Iran on Core PCE in May and June are probably small, but still present. The spike in energy prices due to 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 on core inflation will show up in various ways, such as higher shipping costs. Other inflation measures are already picking up these impacts.

International conflicts are impacting energy prices.

• 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 prices fell through June, but less than crude oil prices. They then rose again in July before dipping slightly in recent weeks. Gasoline is 36% higher than it was before the conflict. Due to global refining disruptions, including reduced Russian capacity, diesel prices started rising in mid-June, separating from the movement in crude oil prices. Diesel is 65% higher than before the Iran conflict began due to the combined oil and refining effects.
• 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 falls again after a rebound.
 

• Consumer sentiment. The University of Michigan produces an index of consumer sentiment and updates it monthly.
•  A decline after a rebound. The preliminary estimate for August 2026, 51.0, is 7.9% lower than the final estimate for July, 13.2% lower than the estimate 12 months earlier, and 10.4% lower than it was in February before the conflict with Iran began.
• Cost of living impacts. Reduced purchasing power due to inflation and worsening expectations of both short-run and long-run business conditions were mentioned as reasons for the decrease. Declining sentiment was found across the political spectrum, but the month-to-month decline was largest among Republicans.
• About the historic lows. Note that the fact that the May 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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