This article reviews recent economic activity in the United States and Kentucky. The U.S. economy has continued to follow the expansionary path that began in late 2001. Real GDP has continued to rise and labor market conditions have also improved. However, inflation has picked up as energy prices have climbed. After briefly surveying the sources of growth in the United States, we discuss the recent direction of monetary policy and interest rates. Finally, we address the macroeconomic impact of the recent shocks to the U.S. economy from Hurricanes Katrina and Rita. Although the hurricanes have been costly, federal government expenditures will not be substantially affected. Moreover, the macroeconomic impact of the hurricanes is likely to be small and short. Although U.S. economic growth will be slower in 2006, the slower pace of growth was apparent before the hurricanes occurred. As we demonstrate, the Kentucky economy tends to move closely with the national economy. This pattern is likely to continue — employment will grow moderately and unemployment should fall in 2006. As with the nation as a whole, the hurricanes of 2005 will not have a significant impact on the Kentucky economy.

This article provides an overview of the composition of Kentucky’s local government revenues using finance data collected by the U.S. Census Bureau on local governments—counties, cities, special districts, and school districts. The census data reveal that local governments in Kentucky have several unique features relative to the nation. The most noticeable difference is local governments in Kentucky rely far less on taxing property and far more on taxing income (wages and profit). Additionally, Kentucky local governments rely on user fees and other miscellaneous revenues to finance government services. These revenue sources, which increased significantly during the 1980s, now represent an important component of local revenue.

The reason for the recent divergence of Kentucky’s unemployment rates from the national unemployment trend is investigated. The methodology for determining the estimated unemployment rate at both national and the state level is discussed. It is concluded that short-term variations in Kentucky’s reported unemployment rate may not accurately reflect current economic conditions in the state.

This paper reports results from an on ongoing investigation into the economic impact of regulation that prohibits smoking inside all restaurants and bars. Estimates of the impact of smoking bans on industry employment levels are obtained for both the restaurant and bar industries using national data. The results indicate that county level industry employment is reduced by bar smoking bans. The estimated impact of restaurant smoking bans depends on the regulating county’s population and the percentage of neighboring counties that also ban smoking in restaurants.