Kentucky’s Economy Remains Strong as Workforce Challenges Shape 2026 Outlook

The University of Kentucky’s Center for Business and Economic Research has released the 2026 Kentucky Annual Economic Report. The report outlines where Kentucky’s economy stands today and what to expect in the year ahead.

The report finds that Kentucky continues to benefit from a diverse economy and a strong manufacturing base. At the same time, slower growth and ongoing workforce challenges are shaping the business environment.

The report covers a wide range of topics and data points on areas such as agriculture, the economy, energy, education, infrastructure, and more.

Kentucky’s Economic Strengths

Manufacturing remains the backbone of Kentucky’s economy. Key industries include automotive, aerospace, advanced materials, food processing, and logistics.

The report also points to Kentucky’s central location and strong interstate system as lasting advantages. These assets continue to support logistics and distribution, helping businesses reach national and global markets.

2026 Growth Outlook

The report projects modest growth in 2026. Employment is expected to grow by 0.2 percent, while real GDP is projected to increase by 1.7 percent. A recession is not expected, but hiring has slowed, and inflation remains elevated, creating more uncertainty for employers.

Education, Workforce, and Community Challenges

The report finds that Kentucky trails most states in educational attainment, with wide regional gaps that affect earnings, workforce participation, and long-term economic opportunity.

Workforce participation remains lower than in most other states, especially in rural and eastern Kentucky. The report notes that recent declines in unemployment are partly due to people leaving the workforce rather than sustained job growth.

Caregiving responsibilities, health issues, and limited access to child care continue to keep many people out of the labor force. These barriers are tightening the job market and making it harder for businesses to grow.

The report also finds that economic mobility is closely tied to community strength, with ongoing challenges in rural and Appalachian areas where poverty, health issues, and workforce participation gaps intersect.

Innovation and Infrastructure Gaps

The report highlights gaps in innovation and productivity. Kentucky trails the nation in venture capital investment, patent activity, and STEM employment, with much of the state’s innovation concentrated in only a few regions.

Infrastructure challenges remain as well. Limited broadband access, aging roads and bridges, and water system needs continue to influence where businesses locate and how they expand.

What It Means for Kentucky Businesses

Overall, the report shows an economy with clear strengths but growth constraints. For Kentucky businesses, workforce participation, innovation capacity, and infrastructure quality remain key factors shaping competitiveness in the years ahead.

For further insight into economic trends, the University of Kentucky is hosting a 2026 Economic Outlook Conference on February 3rd at the Central Bank Center. Learn more here.