Kentucky's Labor Market Struggles as Manufacturing Contracts

Kentucky's labor market showed modest improvement in December 2025, with the seasonally adjusted unemployment rate dropping to 4.5%, down from 4.7% in November, according to the Kentucky Center for Statistics. However, the state's economic performance remains troubled compared to national benchmarks. For all of 2025, Kentucky's annual unemployment rate stood at 4.6%, higher than 39 states and placing the Commonwealth among the weakest labor markets in the nation, tied with Illinois and Ohio for the highest unemployment rate among neighboring states. The state's manufacturing sector, often considered a pillar of Kentucky's economy, has been a particular drag on employment. In December 2025 alone, Kentucky's manufacturing sector shed 1,300 jobs, extending a troubling streak that has seen the sector decline six of the past seven months. Over the full year 2025, manufacturing contracted by 5,200 jobs or 2%, leaving the sector with 252,500 positions. The decline was driven primarily by durable goods manufacturing, which fell by 4,700 jobs or 2.8% from 2024 to 2025, while nondurable goods manufacturing decreased by 500 jobs. "After increasing somewhat in November, manufacturing employment fell in December and has now decreased six of the past seven months," said Mike Clark, director of the University of Kentucky's Center for Business and Economic Research. The broader employment picture reflects significant headwinds. Kentucky's nonfarm employment reached 2,051,100 in December 2025, up just 0.3% or 6,300 jobs compared to December 2024. The business survey data prompted CBER Director Clark to note that "the labor market weakened during 2025," with employers reducing average annual payrolls by 3,400 jobs. While the private educational and health care services sector and the government sector posted gains, these could not offset losses across most major sectors. Over the past decade, manufacturing employment has recovered slightly, up 11,100 jobs or 4.6% since 2015, but recent months suggest that hard-won progress is evaporating.