Mark Schniepp
Mid November 2025
Global Growth 
A slight slowdown in world economic growth is forecast by the International Monetary Fund (IMF) which might produce a drag on U.S. growth but probably not much. Their GDP estimate for the world is 3.1 percent.
The IMF, never really noted for its ability to forecast, does have inflation contracting throughout the world, but cites uncertainty and labor supply shocks as factors that could reduce growth. Uncertainty is always present in some shape or form. We’ve had plenty of uncertainty this year and yet U.S. GDP growth was 3.8 percent in quarter 2 and is estimated at 4.1 percent in quarter 3, according to GDPNOW.
Labor supply shock is an event which would reduce the overall supply of available workers. Well, that risk is always present. It occurred with the pandemic, and it is occurring in the U.S. now in some industries like construction and food services due to deportations.
But a labor supply shock could be a blessing in disguise because we are not forecasting much job growth in advanced economies due to the rapid conversion to labor saving technologies that has grown especially pervasive in the U.S. this year.
U.S. Economy
The consensus forecast at this time (late 2025) is 1.8 percent growth for the U.S, an improvement over the 1.4 to 1.8 percent projection by organizations earlier this year.
The UCLA Anderson forecast in their September report is for 1.1 percent GDP growth, but it will likely be revised upward with their newest update in early December.
The forecast for inflation in the U.S. ranges from 2.9 to 3.5 percent, with Peterson, an outlier predicting 4.5 percent for the consumer price index. UCLA Anderson forecast has consumer price inflation averaging 3.2 percent in 2026.
The Government Shutdown
Late last week’s conclusion of the record 43-day federal government shutdown will enable restoration of key government functions and resume the flow of economic data critical to us economists and policymakers. However, it will take days, weeks and in some cases—months—before all operations are normalized again. While the immediate damage to the economy appears limited, the shutdown’s impact, including delayed spending, suspended contracts, and worker furloughs—are expected to impact overall economic growth in quarter 4. The early estimate is that we will see a half-point reduction in GDP growth. This, however, will be made up in the first two quarters of 2026.
Risks to the Upside
I’m citing upside risks because many of the downside risks already seem to be embedded in the baseline estimates presented above. This includes sticky
inflation, tariff uncertainty and aversion, geopolitical anomalies, and labor force availability.
The upside risks are (1) accelerated growth from AI investments and (2) clear productivity results, (3) lower inflation than expected enabling the FED to continue easing monetary policy benefitting interest rate sensitive sectors, namely the housing market, and (4) stronger corporate earnings supporting higher stock market values.
A less volatile global political environment in 2026 should improve global growth, providing fiscal problems facing European and Asian countries can be contained or limited.
AI Vulnerability
A looming risk that even I will admit to is that continuing U.S. growth depends on whether today’s optimism about AI is sustained. The expanding use of AI
has boosted productivity and output. This will likely continue in 2026 and over time but the path to those gains may be uneven. With business investment and household spending so dependent on confidence in the potential of AI to increase productivity and reduce costs, any setback could disrupt momentum and expose the underlying drag from tariffs, restrictions of immigration, and other policy changes, which would lower the economy’s potential in 2026.
The Labor Market
This is an area of the economy that is being seriously impacted in 2025. No meaningful turnaround in job creation is forecast for 2026, by anyone. Entry level workers will continue to find difficulty landing jobs and fewer job openings will be available overall. Particular sectors such as healthcare and accommodation and food services will provide opportunities for employment. But in industries where AI is being adopted for replacing labor intensive functions, such as software development, professional services, customer service, translators and proofreading, and some data analysis, the industry-wide workforces are likely to contract in 2026.
Until more jobs are created in AI than AI is replacing, the broad-based adoption of new technologies by firms across all sectors will continue
to challenge job creation.
The California Economic Forecast is an economic consulting firm that produces commentary and analysis on the U.S. and California economies. The firm specializes in economic forecasts and economic impact studies, and is available to make timely, compelling, informative and entertaining economic presentations to large or small groups.
