Economic Forecast Highlights Uncertainties Amid New Administration's Policies in California and Nationwide

As the second term of President Donald Trump begins, uncertainties surrounding his administration's economic policies are coming to the forefront, particularly impacting U.S. and California economies. According to the latest report from the UCLA Anderson Forecast, this period is characterized by heightened anxieties about mass deportations of undocumented workers and proposed tariffs on major trade partners, introducing complexities into the economic landscape.

National Overview

The national economic outlook reveals continued robust GDP growth, contrasting with signs of consumer confidence weakening. Despite these mixed signals, there is no immediate forecast for recession, though several factors—including increasing inflation—pose threats to economic stability. Key drivers of inflation include disruptions stemming from avian flu and climate change, creating a challenging environment for the new administration.

The forecast suggests the U.S. could see a decline in GDP and productivity growth by about one percentage point due to the combined effects of deportations and tariffs. Unemployment is expected to rise, hitting 4.5% by early 2026 before stabilizing at around 4.0% in 2027. Inflation rates are projected to hover around 3% throughout 2025 and 2026 due to tariffs leading to higher consumer prices.

History shows that mass deportation can lead to a contraction in the labor market, as highlighted by previous episodes like the Chinese Exclusion Act in 1882 and subsequent policies. The methodology behind such deportations tends to disrupt economic roles filled by immigrants, ultimately affecting the broader working population.

California's Economic Landscape

In California, the picture is equally troubling. The anticipated policies from the administration threaten to withdraw millions of undocumented workers from the labor market, affecting vital sectors such as construction where many laborers currently operate. Construction relies heavily on these workers for essential tasks from drywall installation to flooring, impacting overall home development rates and exacerbating the state's housing crisis.

With persistent inflation making construction loans increasingly costly, the potential for growth in new housing developments remains grim. Consequently, the forecast numbers indicate a mere estimated 102,000 permitted new construction units for 2025, which raises concerns about the state's ability to address the significant housing needs of its population.

Tariffs imposed by the new administration are anticipated to increase the costs of essential building materials sourced globally, leading to further strain on construction projects. Given that a significant portion of U.S. imports, including nearly 70% of lumber from Canada, are influenced by policy changes, any increase in material costs may dissuade the already burdened housing market further.

The forecast for California’s economic growth is projected to align closely with national trends in 2025 and 2026, gradually progressing to a faster pace in 2027. Unemployment rates might average 5.5% in the first quarter of this year and potentially drop as low as 4.8% by 2027 due to variations in labor needs. However, non-farm jobs are only expected to grow at marginal rates, highlighting a stagnation in broader employment opportunities.

Conclusion

The UCLA Anderson Forecast emphasizes the need for monitoring the complex interplay of immigration policies and their economic repercussions. With significant uncertainties surrounding tariffs and potential mass deportations, the economic landscape for both the nation and California appears precarious. The effects of these policies may linger for years, informing the urgency for strategic economic planning and adaptability.

About UCLA Anderson Forecast

The UCLA Anderson Forecast has gained recognition as a leading economic outlook source for California and the nation. This institution has consistently provided essential forecasts, accurately predicting downturns and recoveries alike. As it navigates the latest changes under the Trump administration, it aims to continue delivering valuable insights that help stake holders prepare for the new economic realities. For more information, visit uclaforecast.com.

About UCLA Anderson School of Management

UCLA Anderson School of Management stands as a premier institution dedicated to advancing management thought and story. Located in the vibrant city of Los Angeles, it offers education and training to empower tomorrow's business leaders, emphasizing transformative leadership that positively impacts society. More details can be found at anderson.ucla.edu.