California’s economy, traditionally hailed for growing faster than the United States as a whole, has continued weakening, with key sectors either falling stagnant or contracting and the unemployment rate remaining elevated, according to a UCLA forecast released Wednesday.
Key California economic sectors such as tech, manufacturing, entertainment and logistics have been faltering, leading to the state’s economy growing at only half the rate of the nation, UCLA Anderson Forecast Director Jerry Nickelsburg wrote in his report on the state’s economy.
“California’s unemployment rate has been over 5% during the 19 months ending August 2025, and as of August 2025, it is at 5.5%,” Nickelsburg wrote. “In the first eight months of this year, there has been a decline of 21,200 payroll jobs, the first sustained decline in payroll jobs since the pandemic.”
Nickelsburg wrote that another measure of employment, the survey of households, which includes independent contractors and gig workers, shows an increase in employment, but not enough to keep up with labor force growth. By either measure, employment growth in California in 2025 has not only slowed to a crawl but likely declined, according to the report.
As of August, the California unemployment rate was 1.2 percentage points higher than the United States. Recent UCLA Anderson Forecast Reports found that a 0.3 percentage point difference is typical, as California, on average, is more entrepreneurial and younger than the average for the nation, Nickelsburg wrote.
The report determined that approximately half of the remaining can be traced to the decrease in employment in the entertainment industry. The balance is mostly due to the cutback in employment in big-tech, a reduction in durable goods manufacturing employment, and a reduction in courier employment post-COVID and post-increases in minimum wages, UCLA said.
For the California economy to grow faster than the U.S. economy, as it is accustomed to doing, durable goods manufacturing, including aerospace and technology-laden sectors, will have to rebound strongly, Nickelsburg stated.
“In manufacturing, transportation equipment and related navigational equipment, and semiconductors were the sub-sectors with the largest job loss,” according to the report. “Aerospace should benefit from the return to normal production at Boeing and Airbus and increased emphasis on space exploration and satellite production.”
The Trump administration’s commitment to mass deportations is expected to have continued impacts in the state, along with cuts in federal health care funding — all affecting health care, social services, retail and leisure/hospitality industries, along with impacts on construction and non-durable goods manufacturing.
The two large sectors to be impacted by deportations are food processing and agriculture, the report said. These will be disproportionately felt in the inland parts of the state and the agricultural coastal valleys.
Nickelsburg wrote that during deportations in the 1950s, a guest worker program was set up to bring in seasonal farm workers. While the H-2A visa program is already in place to do this, there is no sign from the Trump administration indicating that bringing back the undocumented agricultural workers is in the works, according to the report.
“Rather, it is believed that U.S. residents with legal status will take jobs in the fields and in the meat processing plants that are now occupied by undocumented workers,” Nickelsburg wrote. “Although temporary worker visas could make up for some of the loss of labor, the visas would likely be available only for the subset of workers who are seasonal. Temporary worker programs are designed for partial-year entry into the U.S. and not permanent entry.”
Nickelsburg predicted the state economy would begin a recovery in late 2026, with economic growth picking up more steam in 2027. Once the state is past the current weakness, which is expected to occur in late 2026, a tech, durable goods manufacturing and construction resurgence should lead to California’s superior growth once again, according to the UCLA forecast.
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