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Economic Outlook by UCLA Anderson Forecast

The UCLA Anderson Forecast's latest quarterly report presents a concerning snapshot of the economic conditions in both the United States and California. As we move through 2025, both regions are experiencing a noticeable deceleration, attributed to multiple economic and geopolitical uncertainties.

While resilience marked the early months of 2025, the factors contributing to a slowdown include aggressive trade policies, fiscal instability, and disruptions in the labor market.

National Economic Landscape

At the national level, the economic outlook is tempered by volatilities. The effective tariff rate stands at around 15%, which is elevating costs in manufacturing and trade-related sectors. This rise in costs is impacting inflation rates and diminishing the competitive edge of U.S. goods on the global market. The geopolitical backdrop complicates matters further, with ongoing conflicts in regions like Ukraine, Iran, and Gaza. These factors contribute to a volatile environment filled with economic tension.

The labor market showed initial strength, reflected in robust job growth and minimal unemployment claims during the spring months. However, forecasts suggest that this momentum may stall, with unemployment rates projected to rise to 4.6% by the close of 2025, potentially continuing to increase into 2026. Additionally, inflation trends suggest rates may surpass 4% in the latter half of 2025 as tariff-induced cost increases permeate supply chains.

Real Gross Domestic Product (GDP) growth, which slightly contracted in Q1 of 2025, is anticipated to slow to a near-zero rate in the second half of the year with only sluggish recovery predicted through 2027.

Examination of California's Economic Challenges

Turning the focus to California, the state faces even more pressing economic issues. After years of outperforming the national economy, California is now experiencing mild contractions. The foremost concern is evident through job losses; approximately 50,000 payroll positions were shed in the first four months of 2025, elevating the unemployment rate to above 5.3%, exceeding the national average by over one percentage point.

Key sectors that have historically fueled California’s economic growth, such as technology, manufacturing, entertainment, and logistics, are witnessing stagnation or decline. While healthcare, education, and government sectors initially bolstered growth in 2024, they seem to have peaked, meaning future growth will likely rely heavily on these areas.

Moreover, pressures are building on the housing market. Factors such as a reduced construction workforce due to deportations, rising costs driven by tariffs, and climbing interest rates are stifling new home development endeavors. Despite a strong demand for housing and increasing prices, the issuance of permits has remained disappointingly low. This has made the prospect of the private sector addressing the housing affordability crisis unlikely in the next three years.

Job and Income Growth Projections for California

The forecast indicates a potential for California’s economic growth to fall below that of the country at large for the remainder of 2025, with a series of quarters exhibiting negative job growth. Expected increases in unemployment rates could peak at 6.1% within the year, with averages for 2025, 2026, and 2027 approximated at 5.8%, 5.6%, and 4.4%, respectively.

Looking ahead, the projected employment growth rates over the next three years are modest at best: 0.1% in 2025, 0.8% in 2026, and 2.5% in 2027. Meanwhile, non-farm payroll jobs might experience a decline of -0.1% in 2025 with subsequent growth rates of 0.4% and 1.9% in the following years. In terms of real personal income, predicted growth rates are 1.6% in 2025, 1.3% in 2026, and 2.7% in 2027.

While the overall economic outlook appears bleak, optimism for recovery may emerge around mid-2026 with expectations of improved growth in 2027. However, concerns linger regarding a multitude of external pressures that could unsettle the economic landscape.

Conclusion

The latest findings from UCLA Anderson Forecast underline the necessity for robust economic policies that can navigate the murky waters created by geopolitical strife and domestic economic challenges. As the state and the nation grapple with these significant hurdles, stakeholders will need to remain vigilant and adaptive to the evolving circumstances shaping the economic framework.

For more details, visit UCLA Anderson Forecast and stay informed about updates regarding the economic outlook.