A new report on the economic outlook for California's Central Valley shows the region facing a rising recession risk because of tariffs, slowing job growth, and rising delinquencies.
Stanislaus State University's Fall 2025 San Joaquin Valley Business Forecast said the recession risk in the region is now estimated at 50%, a significant jump over the long-term average of 15% and signaling that a long-anticipated regional slowdown is fully materializing.
The report said that tariffs and retaliatory trade policies by the Trump administration are contracting real GDP growth, driving up costs, and creating widespread uncertainty that restrains business investment. As a result, regional employment growth has weakened across most sectors in 2025 and is projected to soften even further into the first half of 2026, the report said.
Small business owner Jack Large, who runs Play It Again Sports in Modesto, said the trend matches what he has seen in recent months.
"The last couple of months have been really hard for us, because it's been really slow," Large said.
Industries like retail trade, construction, financial activities, and leisure and hospitality services all posted declines, according to the study. Meanwhile, the forecast projects that the regional unemployment rate, currently just under 8%, will climb above 10% in the coming months.
According to the forecast, about 72% of the Valley's workforce is considered unskilled, leaving the region more vulnerable to a downturn than the state and nation as a whole.
Gökçe Soydemir, the Foster Farms Endowed Professor of Business Economics at Stanislaus State and author of the forecast, said the last time the region saw recession odds this high, outside the COVID-19 pandemic, was during the 2008 Great Recession.
"Small businesses are feeling it at a greater extent, because they have fewer tools in place to weather a recession," he said.
Large said he has already had to reduce staffing.
"The highest I've had was 18," he said. "We're at 12 now, and I only have two full-time employees."
Despite the uncertainty, Large said small businesses remain closely tied to the community and rely heavily on local support.
The report advised Central Valley residents to consider strategies to navigate the economic uncertainty, such as:
Maintaining cash reserves Continuing to rent rather than buy until interest rates align with long-term benchmarks Purchasing a home now only if refinancing later is feasible Taking advantage of falling bond yields Using flexible-rate financing and low-cost student loans to upgrade skills if laid offThe report concluded that initial signs of stabilization and improvement are not likely to emerge until the second half of 2026.
The biannual forecast is used by Central Valley businesses, investors, local and regional governments, and consumers to navigate economic trends with detailed projections on labor markets, housing, personal finance, inflation, and other indicators.
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