California's economy, traditionally hailed for outpacing the United States as a whole, has considerably weakened, with key sectors either falling stagnant or contracting and the unemployment rate remaining elevated, according to a UCLA forecast released Wednesday.
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Key California economic sectors such as 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.
"Over the first four months of the year the state lost 50,000 payroll jobs and the unemployment rate remained above 5%," Nickelsburg wrote. "Moreover, the growth areas of the past year, health care, education, and government have likely hit their peak. Therefore, the data now indicate slow to negative economic growth and a further decline in jobs for 2025."
Nickelsburg wrote that the state is anticipated to experience a mild economic contraction for the balance of the year. But he predicted a resurgence in the technology, durable goods and construction sectors that will help rejuvenate the economy and "lead to superior growth in the Golden State once again."
According to the report, the state's unemployment rate has remained above 5% for the 18 months that ended in April, when the rate was 1.1 percentage points higher than the nation as a whole.
Decreases in employment in the entertainment industry and reductions in the technology and manufacturing sectors have played a large role in the problem, Nickelsburg wrote.
"In the first three months of 2025, the number of payroll jobs in the state declined," he wrote. "There was a small gain of 17,000 jobs in April leaving a deficit of approximately 50,000 jobs for the year. This is the background upon which deportations of some of California's workforce will happen."
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.
"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," Nickelsburg wrote. "Aerospace should benefit from the return to normal production at Boeing and Airbus and increased emphasis on space exploration and satellite production."
Nickelsburg predicted a recovery for the state economy will begin next year, with economic growth picking up more steam in 2027. But for this year, the unemployment rate could peak at 6.1%, while averaging 5.8% for the year -- followed by average rates of 5.6% and 4.4% in the next two years.
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