California’s Economy of Ups, Downs and Uncertainty: 2024 Year in Review

California, which saw economic ups and downs in 2024, heads into a year of uncertainty that will be shaped in part by the actions of the incoming presidential administration.

The state started this year with a multibillion-dollar budget deficit that has been mostly erased with help from its increasing reliance on the fortunes of Silicon Valley. With companies like Nvidia enjoying outsized revenue, profit and stock market gains, the taxes tech companies and employees paid into California coffers helped bring the deficit down. The Legislative Analyst’s Office recently said the budget is “roughly balanced,” estimating a $2 billion deficit next year.

That will be of some help as Gov. Gavin Newsom tries to shore up funding for anticipated legal action against the administration of Donald Trump and balance that with all the state’s other needs. Among the promises of the president-elect that could have negative consequences on California include mass deportations and tariffs, both of which could drastically affect some of the state’s biggest industries, their workforces and the communities that rely on them.

The state, which counts on income taxes for a big portion of its revenue, had an unemployment rate of 5.4% as of November. That was the nation’s second-highest jobless rate, attributable to the loss of many private-sector jobs as companies pulled back from their frantic hiring during the beginning of the pandemic. California is trying a regional approach to creating jobs, but the outcome of those efforts will depend on other factors, such as how businesses deal with the possible effects of tariffs, for example. If businesses’ costs go up because imports become more expensive or their exports decline because of retaliatory tariffs, job creation could go down.

The cost of living and doing business in California continued to rise, prompting both people and companies to move away — though some companies’ headquarters moves were largely symbolic because many of their employees remained in the state. Democratic legislative leaders, acknowledging that affordability issues drove more residents to look for change and vote for Republicans, said recently they plan to focus on policies to tackle the state’s high cost of living, including building more housing.

Meanwhile, amid a continued slowdown in U.S. venture capital deals and initial public offerings, the number of companies in the state that went public rose to 39 from 25 last year, according to Pitchbook. When companies go public, they create wealth that can translate into tax revenue.

2025 outlook

Californians are dealing with higher property insurance costs because many insurance companies stopped writing new policies in the state, citing wildfire risks and higher costs. Insurance Commissioner Ricardo Lara’s plan to address the insurance crisis will take effect early next year, and whether it works could affect not just individual property owners but also renters, small businesses and possibly the housing supply.

The state owes the federal government $20 billion for unemployment insurance that mostly stems from the pandemic, which has prompted the legislative analyst to recommend overhauling the way the unemployment insurance benefit system is funded. If lawmakers fail to address the issue, the system will continue to be underfunded and businesses will face increasing costs to pay down the debt. It would add to companies’ growing complaints about the costs of doing business in the state.

Lastly, federal funding for schools, universities, health care, job training and more have big question marks around them as Trump begins a second term. Costs for programs that the U.S. government has traditionally helped pay for could shift to local and state governments and affect the state’s economy as a whole.

CalMatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.