The latest UCLA Anderson Forecast finds the California economy is growing faster than the nation, though this hasn’t been reflected in new hiring.
The forecast released early Wednesday estimates California’s fourth-quarter growth at 3.8% annualized, well above the initial 1.4% U.S. GDP estimate.
“The state has now grown faster than the nation for four consecutive quarters,” the UCLA economists noted.
However, payroll employment declined in 2025, marking the first sustained contraction since the pandemic. The unemployment rate has remained above 5% for nearly two years, and as of December stood at 5.5%.
“Normally, one would expect employment to grow in step with output and income; however, the opposite has occurred,” the economists said.
The forecast identified the cause as a “new bifurcated economy,” driven by AI, aerospace and other high-productivity sectors on one side, with slower-growing sectors such as construction, retail and segments of leisure and hospitality on the other.
One reason for this, according to the forecast, is that California gets the lion’s share of venture capital, with nearly 70% of U.S. venture funding flowing to California in early 2026.
“In California, the central challenge remains translating high-productivity sector gains into broader-based employment growth,” the economists said.
Nevertheless, there are “encouraging signs” of hiring in aerospace and computer sectors, while port activity and air cargo volumes are rebounding above pre-pandemic levels
The forecast calls for California unemployment to peak at 5.6% this year, then fall to 4.8% in 2027 and 4.4% in 2028.
The UCLA Anderson Forecast is one of the nation’s most widely watched economic outlooks and was among the first to declare the COVID-19 recession in March 2020.
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