State of the Economy

The first six months of 2025 have been marked by economic uncertainty, driven by major shifts in international trade policy, ongoing military conflicts in Eastern Europe and the Middle East, and debates over reforms to federal tax policy and public assistance programs. Surveys of consumers and small business owners reflect this uncertainty. Consumers, for example, grew more pessimistic about their economic futures in the first months of 2025, and small businesses showed less optimism than they did last year. Despite these dynamics, available economic data through May and June 2025 shows a mostly stable economy in Kentucky and the United States, with continued job growth, low layoff activity and unemployment, and cooling inflation.   

Here are five things to know about the economy as of July 7, 2025. 

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:

Read The Full Story on The Bottom Line

Job Growth Remains Steady

• As of May 2025, Kentucky’s labor market showed momentum, with 17,800 new jobs added in the first five months of the year—more than double the 7,400 jobs added during the same period in 2024.
• Kentucky employers surpassed 2 million jobs on record for the first time in state history in January 2023. As of May 2024, Kentucky had 2,057,400 recorded jobs. 
• The U.S. economy added 147,000 jobs in June 2025 and 144,000 jobs in May 2025. However, much of last month’s growth was concentrated in two sectors: state government and health care. Sectors such as manufacturing and wholesale trade saw job losses in June.

Layoff Activity Continues to Trend Below Historical Averages

• Claims for unemployment insurance benefits in Kentucky increased in early 2025 but remain low by historical standards.
• Many workers claim unemployment insurance benefits when they lose their job through no fault of their own, such as layoffs. Low rates of claims suggest that layoffs are still relatively limited despite recent upticks.
• One of the positives of low rates of unemployment insurance claims is that the balance of the state’s Unemployment Insurance Trust Fund was more than $1.160 billion as of July 7, 2025. This helps ensure that the state is well prepared to support laid-off workers in the event that the economy slows or experiences a downturn.

Unemployment Increased Last Year, But Is Low By Historical Standards

• Kentucky’s unemployment rate rose in 2024 but has declined throughout 2025, registering at 5% in May 2025. Unemployment in the state remains below typical levels.
• There were 106,312 unemployed Kentuckians in May 2025, a decline of 6,202 since January 2025 but 2,856 more than this same time last year.
• The national unemployment rate is generally lower than Kentucky’s, registering at 4.2% in May 2025 and 4.1% in June 2025.
• The unemployment rate measures the percentage of adults in the workforce who don’t have a job but are actively looking for one. The unemployment rate can rise and fall due to layoff and hiring activity but also because of more or fewer non-working adults starting to look for work.  
• To learn more about why Kentucky’s unemployment rate rose in 2024, read a Policy Brief written by the Kentucky Chamber Center for Policy and Research in February 2025.

Inflation Has Eased Since 2022

• U.S. inflation rose 2.34% from May 2024 to May 2025, which is just above the Federal Reserve’s 2% target but trending in the right direction.
• Inflation has eased since June 2022’s 7.2% peak but remains a key issue for consumers and businesses.
• This measure of inflation is the personal consumption expenditure index (PCE), which is the preferred inflation measurement for the Federal Reserve. It is different from the more commonly known consumer price index (CPI) in that it more effectively accounts for changes in consumer behavior. Read more here.

Consumers Are Generally Less Optimistic About the Economy Than They Were a Year Ago

• After rising throughout the second half of 2024, consumer sentiment declined in the first quarter of 2025. It rebounded slightly in June 2025.
   

Small Business Owners Are Generally Less Optimistic About the Economy Than They Were a Year Ago

• Similarly, small business optimism rose throughout 2024 but fell in the first quarter of 2025. Like consumer sentiment, it saw a mild rebound in the second quarter of 2025.

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)