State Economic Watch

According to the recently released UCLA Anderson Forecast , its “September 2026 California outlook is slightly weaker than the June forecast, largely because of continued disruption in energy markets”. The Forecast’s authors project continued economic growth for the state, but “inferior employment performance”. They note that the sectors that have driven state payrolls thus far in 2026, notably health care and social services, education and retail, are not expected to continue to support the state’s labor market going forward as “government budget constraints, reductions in federal support for health care and continued deportations are expected to limit hiring in several of those areas”. The authors expect a California weak labor market in 2026, with recovery in 2027 and 2028. They project nonfarm payroll growth of 0.9% in 2026, 1.2% in 2027, 2.2% in 2028.

The “outlook for California is slightly weaker than it was three months ago” according to the latest UCLA Anderson Forecast . The Forecast projects that California’s “bifurcated economy” will continue to outperform the US in terms of output and income growth, but that this will be principally driven by the AI, aerospace and tech industries, while the other sectors of the state's economy will struggle. The authors note that California’s unemployment rate has been above 5% for 27 months, indicating a challenged labor market, and that the state is disproportionately affected by high energy prices due to its low emissions fuel mix requirement and its significant energy-dependent trade, transportation, and logistics sectors. At the same time, they cite the negative impact of current federal immigration policy on the state’s important construction sector. The Forecast calls for non-farm payroll growth of 1.2% in 2026 and 1.5% in 2027.

Today’s release of the latest edition of the UCLA Anderson Forecast contains a somewhat sobering assessment of the California economy. The Forecast projects that the state’s economy won’t start recovering until late 2026. It does, however, project that growth will accelerate in 2027. The report forecasts flat employment growth in California through 2026, with nonfarm payrolls falling -0.1% in 2025, rising only 0.1% in 2026, and then increasing 2.2% in 2027. As a result, the state’s unemployment rate is projected to peak at 6.2% in early 2026 and decline to an average of 4.6% in 2027. The Forecast cites immigration issues as one of the sources of stress in the California economy. You can find a link to the press release here .