UCLA Forecast: California to Finish 2024 with ‘Sub-Par’ Growth, but Rebound in 2025-26

California will wrap up 2024 with “sub-par” growth in gross domestic product, but it is expected to rebound over the next two years and resume its trend of outpacing the nation as a whole, but just barely, according to a UCLA economic forecast released Wednesday.

Jerry Nickelsburg, director of the UCLA Anderson Forecast, wrote in his report for the state that while California’s GDP growth outpaced the nation and all but three other states — Washington, Florida and Texas — in 2023, the state saw only 2.8% growth in the second quarter of 2024, which is 0.2 percentage points less than the nation.

“With U.S. economic growth not expected to accelerate until after the election, a full year of sub-par growth in California is forecast,” Nickelsburg wrote. “There are specific sectoral weaknesses in California as evidenced by its high unemployment rate, and these will continue to contribute to this atypical year of slow growth.

“The following two years (2025 and 2026) will be characterized by a more typical, higher-than-U.S. economic growth led by technology and aerospace.”

Nickelsburg noted, however, that the state will outpace the U.S. over the next two years, “but not by much.”

“The risks to the forecast are political and geopolitical, and the potential for interest rates to still disrupt the current expansion on the downside and increased international immigration and accelerated onshoring of technical manufacturing on the upside,” he wrote.

The forecast predicted an unemployment rate averaging 4.9% during the fourth quarter of the year, with the 2024 average hitting 5.1%, followed by 4.4% and 4.2% in the ensuing two years. Total employment growth over the three- year span was predicted at -0.3%, 2.3% and 1.9%, respectively.

On the national front, UCLA Anderson Forecast economist Clement Bohr wrote that while the third quarter of the year is expected to see “stellar” GDP growth, “we anticipate a slowdown in the fourth quarter due to a convergence of disparate events.”

Those events include a strike at Boeing, along with a walkout that began Tuesday among East Coast dockworkers and the upcoming presidential election.

But following a nationally “tepid” fourth quarter, Bohr predicted 2025 and 2026 “to be banner years for GDP growth, firmly in the high twos, driven in part by growth in residential investment.”

“This future growth will be driven by a rise in residential investment as the housing market is unlocked from its current state, where many homeowners have delayed moving to avoid giving up their previously acquired low fixed-rate mortgages,” Bohr wrote.