The third-quarter UCLA Anderson Forecast released Wednesday warns of a rising risk of layoffs and higher inflation that could lead to a recession.
“The risk of rising layoffs leading to a recession is now a tangible possibility,” according to the forecast.
The forecasters said that the current low unemployment rate “masks weak underlying employment growth, which is a result of a simultaneous decline in the labor supply fromthe working-age population due to restrictive immigration policies and retiring baby boomers.”
At the same time, the forecasters expect inflation to continue to rise throughout the rest of this year as the cost of tariffs is passed on to consumers.
The UCLA economists said that even if a recession is avoided, the economy could enter a period of “stagflation” like the late 1970s, with both higher inflation and greater unemployment.
The forecast calls for the national economy to recover in mid 2026 and reach a 2% annual growth rate by the fourth quarter of 2026,
California is currently growing more slowly than the U.S. average, in part because of a decline in manufacturing jobs, and deportations that have impacted food processing and agriculture. The forecasters said the while the Trump administration expects “U.S. residents with legal status will take open jobs in the fields and in the meat processing plants,” that is unlikely to happen.
The forecast calls for the California to begin to recover in late 2026, with slightly higher growth in 2027. The unemployment rate is expected to hit a peak of 6.2% early next year, with average average unemployment rates for 2025, 2026 and 2027 expected to be 5.5%, 5.9% and 4.6%.
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