Cloudy Outlook

The UCLA Anderson Forecast met yesterday for its quarterly presentation on the economic outlook. The general forecast remains as it was back in June but with more uncertainty surrounding in particular Federal Reserve policy. AI investment - perhaps a bubble like the dot-com boom of the 1990s? - has been a significant factor in keeping the economy afloat. The labor market still has relatively low unemployment but unemployment is rising and both hiring and firing are sluggish. 

Tariffs remain a potential aggravating factor for inflation but so far they have had a limited effect on prices, suggesting their full impact has not (yet?) been passed to consumers. However, inflation has ticked up above the Fed's 2%/annum target. Nonetheless, the Fed has cut interest rates. 

The California outlook is summarized below:

From an Anderson/Forecast news release: ...For the California economy to grow faster than the U.S. economy, as it is accustomed to do, durable goods manufacturing — including aerospace and technology-laden sectors — will have to rebound strongly. In manufacturing, transportation equipment and related navigational equipment and semiconductors were the subsectors with the largest job losses in 2025. Aerospace should benefit from the return to normal production at Boeing and Airbus and increased emphasis on space exploration and satellite production. The recovery at Boeing is not expected to be adversely impacted by tariff-based retaliatory action by China and India in the near term, as Boeing has a 10-year backlog of aircraft orders that include many aircraft that would have been manufactured over the three years of an FAA-mandated slowdown in production. Nevertheless, California and the nation have experienced a general decline in manufacturing employment, and the timing of a turn-around in this sector remains uncertain. For technology, the issues are the issuance of a large number of H-1B visas and the rapidly changing skill set emphasizing AI development, now demanded by employers.

Two sectors that will be impacted by deportations are food processing (non-durable goods manufacturing) and agriculture. These will be disproportionately felt in the inland parts of the state and the agricultural coastal valleys. The H-2A program is in place for the purpose of allowing U.S. companies to hire foreign nationals temporarily for agricultural work. However, there is no sign from the Trump administration to indicate that it will champion bringing in seasonal guest workers. 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. Although temporary worker visas could make up for some of the loss of labor, the visas would likely be available only to the subset of workers who are seasonal. Temporary worker programs like H2-A are designed for partial-year entry into the U.S. and not permanent entry.

The data from the past three months confirmed that the California economy has been growing slower than the U.S. in 2025, with several quarters of negative job growth. The current forecast is substantially the same as June’s, with a slightly weaker 2025 and a slightly stronger 2027. A recovery in California will commence in late 2026; growth will be slightly faster in 2027. The unemployment rate is expected to hit a peak of 6.2% early next year and the average unemployment rates for 2025, 2026 and 2027 are expected to be 5.5%, 5.9% and 4.6%, respectively.

The forecast for 2025, 2026 and 2027 is for total employment growth rates to be 0.5%, 0.4% and 2.3%, while non-farm payroll jobs are expected to be -0.1%, 0.1% and 2.2% during the same three years. Real personal income is forecast to grow by 1.5% in 2025, 0.9% in 2026 and 2.7% in 2027. Higher interest rates, shortages of construction labor, and the rebuilding of damaged and destroyed homes lowered our residential construction forecast from March. The UCLA Anderson Forecast’s expectation is for permitted new units to be 107,000 this year and grow to 117,000 by the end of 2027. This level of home building means that the prospect for the private sector building out of the housing affordability problem over the next three years is nil...

Full release at https://www.anderson.ucla.edu/news-and-events/weakness-persists-us-and-california-economies-recovery-not-expected-until-2026.

The program also had a unit on the clean air/clean trucks programs at the Ports and a tariff discussion.

You can see the Forecast conference at:

Or direct to https://www.youtube.com/watch?v=f4cceQDtkck.