Category: Uncategorized

Mark Schniepp
September 2026

The Iran-Israeli-U.S. war has now entered month 7. The first bombs fell on February 28, 2026. On-again off-again snippets of war raged through the summer with concerns about interrupted flows of oil through the Strait of Hormuz never really resolved.

Consequently, oil prices have remained elevated for much of the year. Higher oil prices have impacted costs for many goods (and services) including transportation, energy, and trucking. Indirectly higher costs here have indirectly pushed food, plastics, rubber, lubricants, and asphalt prices higher.

Elevated inflation rates have pushed both shorter and longer term interest rates higher, stalling downward progress that had been steadily made over the last 2 years.

While inflation has still been remarkably contained over the last several months, longer term interest rates have rebounded 50 to 60 basis points. Forecasts made at the beginning of the year had mortgage rates below 6.0 percent by summer. Inflation forecasts for Q3 were also pegged at 2.2 to 2.6 percent. These indicators are still likely to move lower when the war is ultimately resolved, but we lose up to a year in delayed progress.

Consequently, the economy’s full potential to expand has largely been restrained by higher borrowing costs and higher product prices across the consumer and producer domain.

A year ago, it was believed the regime of tariffs ushered in by the new administration would raise prices on consumer goods and encumber overall economic growth. Higher tariffs threatened against many of our trading partners generally did not manifest. The average effective tariff rate calculated by the Tax Foundation is 6.6 percent for calendar 2026. Tariffs have been largely absorbed and only parts of it passed through. Consequently, a smaller impact on the inflation rate has ensued, and that part is mostly obscured by higher oil prices.

Labor Markets

The other glaring issue is how labor markets are currently being disrupted by the growing adoption of AI systems and automations by businesses. The clear and general softening of demand for workers in most sectors of the economy has led to consolidations of workforces in finance, manufacturing, professional services, utilities, retail trade, wholesale trade, and information.

Job creation over the last twelve months has added 603,000 jobs to the U.S. labor market, including 162,000 in the latest reporting for August. In California, job creation over the last 12 months sums to 113,000 new jobs, including a decline of 23,000 jobs in the latest reporting month of July.

Job openings have settled back to pre-pandemic levels but only the healthcare and leisure/hospitality sectors are expanding their workforces in California. Retail trade and professional services are neutral this year; all other industries report shrinking employment.

Meanwhile, the state’s unemployment rate is moving lower, not higher despite the austere hiring environment that has persisted since early 2023. And this is entirely due to the contraction of the labor force now occurring nationwide and accelerating downward in California.

A declining labor force especially in California can be linked to deportations and retirements, notably of the baby boom generation that is now between the ages of 62 and 80. A reversal of the downward movement of the labor force is expected, but job growth will nevertheless remain modest.

Current Engines of Growth
in the U.S. Economy

Modest growth in Q1 and Q2 of this year, due to the uncertainties of the war, the higher borrowing rates, and costs of gasoline, diesel and jet fuels seem now to be fading.

Furthermore, all major spending categories of GDP are contributing meaningfully to U.S. economic growth, and it is finally become more apparent in the output data. GDPNOW for Q3 is estimated at 4.7 percent in the latest reporting by the Atlanta Federal Reserve.

Consumption, and Investment in non-residential structures, software, and equipment is soaring. The onshoring of manufacturing together with data centers is leading the surge in business investment. Extraordinary cap-X spending has been quite apparent during the first half of 2026.

This is also true of business spending on equipment and software which has been rising sharply since the beginning of 2025.

Household consumption, measured by either the growth of retail goods spending or personal consumption expenditures on goods and services has curiously accelerated this year.

While consumers are still frustrated by the price level, they are nevertheless spending freely. Despite modest growth of jobs this year for the second year in a row, the labor market is at or close to full employment. Furthermore household 401K portfolios rose sharply in 2025 and the average return for 2026 year-to-date is 14 percent.

Domestic production is accommodating both the growth of domestic consumption from households and businesses, and foreign demand for goods and services. Export values have surged this year, adding further to total output growth.

Recession is entirely off the table this year. While overall economic growth in Q1 and Q2 was modest, Q3 growth appears more like a breakout. GDPNOW growth estimates currently peg the Q3 rate at 4.7 percent.

Inflation for the rest of the year will remain elevated. Ditto longer term interest rates.
Progress on both has been stalled, and noticeable improvement will be pushed into 2027 Q2.

The concern over cap-x was manifested in the stock prices of Amazon and Microsoft. Stock valuations for each were at year-to-date lows before their Q2 earnings reports. When Q2 earnings came out last month, share prices of both companies gapped higher, to all time record highs. NVDA is also near record highs following blockbuster earnings for Q2, reported on August 26.

With fears now dashed regarding AI cap-x spending, tech stocks could move higher ahead of Q3 reports. However, investors are nervous regarding inflation, interest rates, and what the Fed might do in the wake of stronger economic reports (such as the jobs report). The market historically is challenged in September and October. A rate hike by the Fed may well signal a death blow to the market, since it is unlikely to be priced in to date.

High crude oil prices, high yields on the 10-year Treasury are worrisome, but they are unlikely to materially slow down the economy in Q3 by themselves. Other catalysts which pose risks such as a serious stock market correction, new uncertainties regarding the war, or an unexpected Fed move could represent a shock, but these are low risk.

We are watching closely the jobs reports, the inflation reports, the efforts to resolve the war and normalize the price of crude oil, the “disruptability” of AI on the labor markets, and the probable Fed policies when they meet this month and again in late October for clues about the prospects for a higher growth year in 2027.

Mark Schniepp
August 2026

The labor force represents all residents in the jurisdiction (U.S., State, or County) who voluntarily seek employment. Not all residents seek employment because they (1) are not of age, (2) are retired, (3) are not capable of working, or (4) simply choose not to participate in the workforce.

Growth of the labor force

The labor force typically grows in sync with the population. Workforce eligible participants in the population include all men and women age 16 and over with both a willingness and capacity to work.

Not all people 16 and over choose to formally work. Many will remain homemakers, family caretakers, are financially independent, or will be supported by means other than their own earnings.

The size of the labor force has moved in step with the population, until recently.

The 2020 pandemic created a behavioral change that reduced labor force growth despite slower albeit positive population growth.

Growth today is influenced by the aging population, changes in immigration policies, and a slower rate of hiring in the labor market.

Retirement of the Baby Boomers

The largest factor slowing the growth of the labor force is the rising retirement rate of the baby boom generation (born between 1946 and 1964 and representing anyone aged 62 to 80 years old today). Due to improved health and longevity, many boomers will continue to work beyond typical retirement ages but more will not. Their departure from the labor force which was amplified by the onset of business lockdowns in 2020, together with the choice by many two-worker households to become caretakers for sick family members and/or to home school their children. One then dropped out of the labor force.

The labor force began to resume a normal growth trend by 2022 but that growth rate is much lower than the pre-pandemic rate. Consequently, today the labor force is much lower than the pre-pandemic trend line suggests. This is the red line in the chart.

The lower labor force today (6 million off trend) is now being exacerbated by new immigration policy since January 2025 that has reduced foreign in-migration by 85 percent.

The Trump Administration’s New Southern Border Policies

The immigration explosion that characterized the southern border of the United States in 2022, 2023 and 2024 was abruptly ended on Trump’s first day of office. “Remain in Mexico” has been reinstated. “Catch and release” has been replaced with “Catch and Detain.” Entry of migrants at the southern boarder was suspended until the “invasion” was abated. And expanded use of expedited removal for illegal immigrants already in the U.S. has been funded.

An estimated 10 million net migrants entered the U.S. through southern U.S. border stations under the Biden Administration, an average of 2.5 million per year. That number has now dwindled to an estimated 321,000 in 2026, including the northern border.^[1]

Currently, the estimates are either negative or are trending toward negative net international migration. If confirmed negative, this will be the first time the United States has lost international migrants in more than 50 years.

Because foreign born migrants into the U.S. are a disproportionately work-oriented group, they broadly expanded the U.S. labor force in 2023, 2024 and 2025. Now that this flow has been reduced to near zero or even negative with deportations, this is a principal reason for very low unemployment rates nationwide, and why despite very low rates of employment growth, there is no visible trauma in the labor markets this year.

California

Labor force growth has now turned even lower in California, down more than 1.0 percent year over year in June. Declining population and labor force is largely the result of residents leaving California for more affordable states, and the meaningful reduction in net foreign immigration relocating into California.

The labor force has been shrinking over the last 4 months, in tandem with the population decline that preceded it during 2025. There are now fewer people either working or looking for work in the state.

If this trend continues, the pool of workers from which existing or prospective firms can draw from will contract. Workers from other states will be needed to fill open positions, but that inflow is much less than the outflow of workers to other state.

Fortunately however, job creation in California has been negligible. The shrinking labor force is occurring faster than the shrinking workforce, causing the unemployment rate to decline.

So, while California does not show any signs of escalating unemployment, the lack of available workers does represent a serious impediment for firms wanting to or needing to hire. More people comprise the workforce in California today than at any other time. Growth is not projected to increase much going forward. But it will take AI and it’s supporting systems within the productive chain more time than we are expecting to achieve meaningful advances in productivity. Consequently, we are in a transitional period where we still need human workers for most jobs while technology races to accelerate the pace of supporting systems such as robotics to implement instructions from the rapidly advancing AI brain.

Implications

The U.S. continues to grow in terms of total employment and population, though the rates of growth have meaningfully slowed to a crawl. Nevertheless, there are more households creating income and providing revenues to federal, state, and local governments through taxation.

In California, population and the labor force are in decline. Declining population and labor force don’t automatically lead to collapse, but they do mean the region must work harder to avoid slower growth, fiscal strain and reduced services over time.

A declining population and shrinking labor force usually mean slower economic growth, fiscal stress, and structural change for a state or region, unless offset by immigration or big productivity gains.

The big productivity gains could be coming as a result of wider spread implementation of AI systems and the adoption of advanced automations such as robots.

For now, the labor force is the main input into production; when it stops growing or shrinks, it mechanically reduces the economy’s capacity to produce goods and/or services.

A smaller pool of workers can result in staffing gaps in key sectors like healthcare, construction, and services. This does lead to rising wages as firms compete harder for talent.

With fewer workers paying taxes and more retirees drawing pensions and using healthcare, governments face shrinking tax bases and rising age related spending, which can lead to higher tax rates or cuts to services.

Regions with sustained population and workforce loss may see school closures, reduced healthcare access, and underused infrastructure, making it harder to attract businesses or new residents. This could ultimately manifest into a downward spiral.

Possible Responses

Develop incentives to keep older workers in the labor force longer.

Attract migrants to replenish the working-age populations. However, the problem here is housing so more aggressive housing policies would therefore need to be pursued. This will be very difficult with the California Environmental Quality Act largely influencing development in California.

Encourage automation and boost productivity with broader implementation of AI systems. Ultimately, fewer workers will be needed, and existing workers will earn higher rates of remuneration.

Startup companies will be limited since workers will be scarce. They will need to rapidly adopt higher capital-to-labor ratios in their production model to stay competitive.

Because we are an in inflexion point regarding the onset of AI and its ability to replace labor throughout the productive chain, human labor is still required in most industries, including healthcare, construction, leisure and hospitality, and light manufacturing. Consequently, housing policies must adapt to meeting at least a reduced level of demand for new migrant workers today.

[1] Congressional Budget Office, 2024-2026 revised estimates. Brookings institution estimates that net migration in 2025 likely ranged between -295,000 and -10,000. For 2026, the same analysis projects net migration likely between -925,000 and +185,000.

Mark Schniepp
Mid June, 2026

Relative to the rest of the U.S. economy, and historically, California’s labor market remains weak. We continue to monitor this closely because of all economic issues, this is the most fragile condition afflicting the state. Moreover, the state of the labor market is even more concerning for Southern California.

The good news is that job opportunities in the region remain positive. The bad news is that opportunities are limited to healthcare and leisure/hospitality. This was the story throughout 2025 and that condition has extended into 2026.

At the current pace of new job formation for the first four months of the year, only 28,000 jobs will be created in 2026. (For the entire state, the annual job creation pace is 173,000) Last year at this time, the region had lost 3,500 jobs, only to emerge with a net gain of 13,000 new jobs for the entire year. Though the pace this year has accelerated, it still extends the alarming slowdown of employment growth in place over the last 3 years.

The labor markets that would likely be impacted by meaningful adoption of AI include professional services, information, financial activities, and manufacturing. All of these industries continue to downsize.

There is no evidence yet that job creation in California is rebounding. Moreover, California has had some of the largest layoff totals in the country, particularly in tech and related industries (30,000 announced between January and May).

According to the website: jobloss.ai, 130,000 announced layoffs in the nation this year are due to AI. The largest numbers of layoffs are coming from Oracle, headquartered in Austin but with a significant presence in Redwood City (San Mateo County) with an estimated 6,500 employees.

The normally weak record for job creation in 2025 and continuing this year would be cause for alarm, especially if the ranks of unemployed workers were stacking up.

But the unemployment rate has been relatively constant over the last 3 years. The latest rate, 4.8 percent, is lower than the statewide average and generally unaffected by the lack of job creation this year.

There are 69,000 fewer residents working this year than last, and 88,000 fewer people in the laborforce (wanting to work) this year than last. This is why there is no demonstrable trauma apparent in the labor market so far.

If economists don’t report that this labor market is weird, then they should be because it’s showing very little movement and rates of unemployment are still relatively low. Furthermore, applications for unemployment insurance show no tendency whatsoever of rising.

We can only assume that laid off workers are becoming re-employed rather quickly, preventing them from having to report themselves as unemployed.

Are labor markets going to change going forward ?

We don’t anticipate any major shifts this year. In fact, our forecast for job creation in 2026 is running close to the actual for the first four months of the year. Consequently, present labor market conditions are no surprise.

What is surprising is the decline in construction employment. Is a smaller workforce this year related to deportations, or are ongoing projects needing fewer workers through April?  New development in the state remains strong, and new housing starts in California are 4 percent higher this year than in 2025.Also, infrastructure projects throughout the state are prolific.

Employment in construction is expected to increase providing the labor force expands to meet demand which is the quagmire limiting many sectors from hiring right now. The two factors impacting the labor market are the lack of labor force growth, and the broader adoption of artificial intelligence which is certainly restricting opportunities in tech, finance, manufacturing, and information.

Mark Schniepp

May 2026

There is this notion that AI is now showing up everywhere except in the recent macroeconomic data that measure worker productivity.

At the economy-wide level, the proof is still emerging and less clean. At first, the AI-related investment and capital utilization that has occurred, largely in 2025, rather than direct worker productivity has driven recent strength in productivity.

However more evidence to date suggests AI has begun to yield measurable productivity gains, with data indicating an increase in individual task efficiency. However, the effect on aggregate macroeconomic data is still emerging.

Broader economic data, such as U.S. labor productivity growth, is climbing to annualized rates ranging between 1.8 and 2.7 percent outperforming the sluggish 1.4 percent average of the previous decade. Economists attribute much of this to early AI capital investment and business reorganization.

Across one hundred thousand real world conversations, Anthropic, makers of Claude, estimates that AI reduces task completion time by 80 percent. Extrapolating the savings in time valued at Bureau of Statistics wage rates across legal, management, and healthcare users, an annual labor productivity increase of 1.8 percent is inferred by Anthropic.^[1]

Other studies show users completing tasks between 76 and 176 percent faster, with specific fields like software development observing measurable bumps in output.

Particular Sectors Impacted

Gains are highly concentrated. High-skilled services (like finance) are seeing the most immediate and substantial gains, while broad, economy-wide adoption is still maturing.^[2]

Workplace experiments have shown large productivity gains:

1. Customer support workers complete more tasks with better quality using AI

Customer service agents using AI resolve 14 percent more issues per hour.^[3] Additionally, a Stanford-MIT study of more than 5,000 customer support agents found that generative AI increased productivity by 14 percent overall, while less experienced workers improved performance by roughly 35percent.^[4] Less experienced workers benefit from AI by accepting its recommendations and learn skillsets that usually come with experience. Researchers concluded that AI systems often function as “skill equalizers,” disproportionately benefiting novice workers.

2. Professional writers using ChatGPT finished work faster with improved quality,

Microsoft Copilot users reported saving an average of 11 minutes per workday in early workplace studies.^[5]

3. Software developers using coding assistants increased the number of tasks they completed per day.^[6]

GitHub Copilot users complete coding tasks 55 percent faster.^[7] Additionally, a 2025 field study involving 4,867 developers across three firms found AI coding assistants increased completed tasks by approximately 26 percent.^[8]

U.S. labor productivity growth accelerated to roughly 2.7 percent in 2024 after averaging about 1.4 percent during the previous decade, though economists still debate how much of the increase is directly attributable to AI. Economists describe the current period as a possible “AI J-curve,” where heavy investment in data centers, software, and organizational restructuring occurs before full productivity gains appear in national statistics. The most rigorous productivity research consistently finds a skill-leveling effect: AI helps weaker performers far more than experts. In a landmark study of 5,179 customer service agents, novice workers improved by 34 percent while top performers showed minimal gains—and even slight quality declines. This pattern repeats across every major peer-reviewed study.^[9]

Based on a recent (February 4 to February 19, 2026) poll, Gallup surveyed 23,700 workers and found that many U.S. employees who use AI say it boosts their productivity, especially when employers support the tools and fit them into workflows.^[10]

In general, surveys indicate that adoption remains uneven across firms. The 2026 Gallup poll found that although half of employees report some AI usage, only about one-quarter use AI frequently in their daily workflow. Managerial support and integration into existing business systems strongly influence whether productivity gains materialize.^[11]

The empirical literature to date supports several conclusions with relatively high confidence. Workplace studies demonstrate large productivity gains from the adoption of AI for writing, customer support, software development, and translation, across occupations.

Experiments consistently found productivity gains of between 15 and 50 percent.

Wall Street Journal, May 5, 2026, https://www.wsj.com/tech/coinbase-to-slash-14-of-workforce-as-part-of-restructuring-62b9d27d

Worker Displacement

Studies in 2024 and 2025 found little evidence of economywide job loss or wage decline despite the rapid adoption of AI systems in the workplace. Alternatively, there is now more compelling evidence of job loss, especially in California, which is supported by myriad reporting’s and announcements on job displacement particularly in technology sectors.^[12]

Challenger, Gray & Christmas estimated that approximately 20 percent of tracked global layoffs in early 2026 were directly attributed to AI adoption and automation. California WARN filings showed engineers, data scientists, and customer-support workers were disproportionately affected.^[13]

California technology firms announced more than 26,000 job cuts during the first two months of 2026 alone, with firms including Amazon, Meta, Workday, Block, Pinterest, Google, and C3.ai citing AI-related restructuring and automation efficiencies. The cuts — concentrated in Silicon Valley and the San Francisco Bay Area — reflect ongoing restructuring as major companies accelerate AI adoption and automation initiatives. Amazon, Meta, Block, Workday, and C3.ai have been among the largest contributors to the year-to-date total, collectively accounting for nearly 70 percent of all recorded eliminations through February 28.^[14]

The AI job-loss tracker jobloss.ai compiles and displays reported job cuts in the U.S. where employers explicitly cite AI or automation as the cause. For each event, they record the number of positions eliminated and attribute those to AI‑related displacement when it is explicitly mentioned, then add them to the cumulative total.  Since early 2025 to date, there is a reported total of 184,000 jobs displaced by AI.

[1] “Estimating AI productivity gains from Claude conversations,” Antropic, November 25, 2025, https://www.anthropic.com/research/estimating-productivity-gains

[2] The 2025 AI Index Report, Stanford University HAI, https://hai.stanford.edu/ai-index/2025-ai-index-report

[3] Yıldız, Güney, “AI Productivity’s $4 Trillion Question: Hype, Hope, And Hard Data”, Forbes, January 20, 2026, https://www.forbes.com/sites/guneyyildiz/2026/01/20/ai-productivitys-4-trillion-question-hype-hope-and-hard-data/

[4] Liu, Jennifer, “Stanford and MIT study: A.I. boosted worker productivity by 14%—those who use it ‘will replace those who don’t’”, CNBC, April 25, 2023, https://www.cnbc.com/2023/04/25/stanford-and-mit-study-ai-boosted-worker-productivity-by-14percent.html

[5] “AI Productivity Statistics 2026”, TaskROI, March 2026, https://taskroi.com/stats

[6] AI, Productivity, and Labor Markets: A Review of the Empirical Evidence, by Eric Fruits and Kristian Stout, International Center for Law & Economics, February 2026. https://laweconcenter.org/resources/ai-productivity-and-labor-markets-a-review-of-the-empirical-evidence/

[7] Yıldız, Güney, “AI Productivity’s $4 Trillion Question: Hype, Hope, And Hard Data”, Forbes, January 20, 2026, https://www.forbes.com/sites/guneyyildiz/2026/01/20/ai-productivitys-4-trillion-question-hype-hope-and-hard-data/

[8] Cui et al. “Restoring Trust with Heart—Renqing, Relational Norms, and Cultural Intelligence in B2B Marketing”, American Marketing Association, 2025, https://doi.org/10.1177/1069031X251363727

[9] Yıldız, Güney, “AI Productivity’s $4 Trillion Question: Hype, Hope, And Hard Data”, Forbes, January 20, 2026, https://www.forbes.com/sites/guneyyildiz/2026/01/20/ai-productivitys-4-trillion-question-hype-hope-and-hard-data/

[10] “AI at Work, Quantified,” The Batch, May 8, 2026

[11] “Indicators: Artificial Intelligence”, Gallup, February 2026,  https://www.gallup.com/699797/indicator-artificial-intelligence.aspx

[12] “Brynjolfsson, Erik, et. Al., “Canaries in the Coal Mine” Six Facts about the Recent Empoloyment Effects of Artificial Intelligence, November 13, 2025, https://digitaleconomy.stanford.edu/app/uploads/2025/11/CanariesintheCoalMine_Nov25.pdf?utm_campaign=The%20Batch&utm_source=hs_email&utm_medium=email

[13] Boyle, Conan, “California Tech Sector Announces 26,283 Job Cuts in Early 2026 Amid AI-Driven Restructuring”, Objectwire, March 19, 2026, https://www.objectwire.org/california/california-tech-layoffs-2026-ai-restructuring-26000-job-cuts

[14] Boyle, Conan, “California Tech Sector Announces 26,283 Job Cuts in Early 2026 Amid AI-Driven Restructuring”, Objectwire, March 19, 2026, https://www.objectwire.org/california/california-tech-layoffs-2026-ai-restructuring-26000-job-cuts

Mark Schniepp
April 2026

Uncertainty

A year ago, tariff hysteria gripped the nation, the stock market, and all the talking heads on TV who predicted carnage and chaos in the form of higher inflation, infuriating the nations we trade with, and interrupting economic growth. Clearly this was politically motivated because none of that happened.

In 2025 the nation (and more severely so, California) experienced an expansion in growth with barely any job creation. So, in spite of the tariffs and weak labor markets, GDP rallied from the investment boom in Artificial Intelligence (AI). Economic growth would have been even more impressive had it not been for the 43-day government shutdown. According to the Bureau of Economic Analysis, this subtracted slightly more than a full percentage point from fourth quarter GDP growth.^[1]

Here we are a year later and the new uncertainty of the season is the price of oil, inflation (again), the duration of the Israel-Iran war, and how all of these things together will upset domestic economic growth.

Oil prices have jumped $40 to $50 per barrel since early March, resulting in a $1.50 per gallon bump for gasoline in California. Higher gasoline prices are akin to a tax increase, especially for lower income groups. So, we are all paying a higher tax on gasoline due entirely to the war.

Also due to the war driving up oil prices, the stock market has experienced a 10 percent correction, and interest rates (especially in the 10-year treasury bond and mortgages) have moved noticeably higher. Economists see most of these movements as temporary and prices and rates will very likely revert back to pre-war levels once the Middle East conflict and Strait of Hormuz situation is resolved. No recession is forecast, but both inflation and unemployment rates will increase this year.

The first quarter estimate for GDP by the Atlanta Federal Reserve’s GDPNOW prediction has ranged from 2.3 to 1.3 percent over the last few weeks. A slowdown in consumer spending and business investment in late March and early April have pushed the estimate down to 1.3 percent.

Inflation

Last year we were correct regarding our skepticism about Tariffs causing higher rates of inflation. The U.S. economy remains predominantly domestically driven, with tariffs having a greater impact on trading partners than on the U.S. economy itself.

Capital markets were nervous at first but settled down. Inflation for the most part simply moved laterally through 2025. If anything, tariffs may have prevented inflation from going lower, but no clear indication on the price level could be detected as tariff-driven.

Nevertheless, inflation has missed the Fed’s 2.0 percent threshold for over five years.  It was 2.4 percent in both January and February this year and was seemingly making progress toward reaching the target rate later in 2026.

But crude oil prices soared with the onset of the war in early March and have remained sharply higher into April.  The effect of this has pushed the headline rate of inflation higher (to 3.3 percent), due principally to higher gasoline prices but indirectly through other prices now being raised by vendors to compensate for their higher fuel costs.

The longer that crude oil prices stay elevated, the longer it will take for gasoline prices to retreat and for pre-war levels of inflation to be restored. More fed cuts, that were anticipated before March, are likely off the table now until at least later in the summer. Inflation is going to remain sticky for awhile and movement toward the Fed target will be delayed further.

Interest Rates and Federal Debt 

Interest rates rose sharply in March, in sync with oil prices. An inflationary environment does not favor the bond market where interest rates are determined. Consequently, the war is the first issue that needs to be resolved. Combined with lowering inflation, another big issue is the federal debt, which continues to rise. If Congress really wanted to make housing more affordable in this country, they would reduce federal spending so that a potential budget surplus could go toward debt reduction. That would make a meaningful difference in longer term rates, mortgage costs, and a buyer’s ability to purchase a home.

Many economic ills could be resolved with lower inflation, lower levels of debt, and avoiding wars that threaten oil prices, or any globally demanded natural resource.

The Trump administration has asserted that a temporary spike in gasoline prices is worth de-arming Iran of its ballistic missile and nuclear capability. While that may certainly be true, it is just as important, now that their capability has been “de-fanged,” to resolve the matter as fast as possible so that prolonged inflation can be avoided this year.

Optimism Ahead ?                    

The aggregate effect of war, higher oil prices, possible prolonged inflation and even the mounting federal debt can be summarized by movements in the stock market. Currently, the broader market indices are rallying back and are now break even for the year-to-date. That is an encouraging sign for the current 2026 edition of economic uncertainty.

[1] Analysts using BEA data estimate that the shutdown subtracted roughly 1.15 percentage points from Q4 2025 annualized GDP growth, mainly via a 16.6 percent drop in federal spending. Without the shutdown, Q4 growth would have been around 2.5–2.6 percent instead of the reported 1.4 percent. See: https://www.federatedhermes.com/us/insights/article/government-shutdown-masks-solid-gdp-growth.do

The Fragile Labor Market

No labor market data on job creation is available yet for California this year as Q1 is nearly completed. The first report will arrive in April. However, for the U.S., the January and February reports were released and the results were mixed; January was a stellar report, and February was not though it was impacted by the 31,000 worker Kaiser strike in the healthcare industry.

Over the last 12 months, the U.S. created 155,000 jobs; however, 126,000 were created in January 2026 alone.  If not for that, virtually no net job creation would have occurred nationwide since March 2025.

This clearly demonstrates the existence of a fragile labor market condition today. However, due to virtually no growth in the labor force over the last 12 months (and much slower growth since the pandemic), the unemployment rate has only ticked up 0.2 of a percentage point over this time period (to 4.4 percent), a negligible amount.  Consequently, despite the lack of job creation, there is not much reported labor force misery. At least not yet.

While yes, it is the entry level age group that is unable to land jobs, this age cohort largely lives with their parents, has not had a full-time job yet, and is therefore not eligible for unemployment benefits.  Consequently, unemployment insurance claims show no discernable increase.

Layoffs

Driven by AI restructuring, automation and cost-cutting efforts at major firms, layoffs in 2026 are now surging.

As of March 11, the following high profile layoff announcements have been made this year:

In early March, Block announced a 40 percent of workforce layoff plan, equating to 4,000 workers to be replaced by AI.  Block is the parent company of Square and CassApp. Software giant Atlassian (Australia) announced a 10 percent cut on March 9, with 640 layoffs occurring in the U.S. The company makes the Jira and Confluence software for project tracking and documentation respectively. Most companies like Atlassian are cutting staff citing the impact of AI among the principal reasons for layoffs.

California has led the nation in layoffs since 2022, and with the highest number of layoffs since the pandemic year of 2020 occurring in 2025.

WARN Report^[1]

The WARN reports present announced job cuts by company and by county.  We have aggregated announced layoffs by the date when they are effective for 4 counties in Southern California: Ventura, Los Angeles, Orange, and San Diego. The data indicates which industries are generating the most layoffs over the last four years.

With the largest workforce in the state, it is predictable that LA County had the most layoffs over the 5-year period of calendar 2021 through 2025 plus the first 2 months of 2026. 83,100 were reported followed by San Diego, Orange, and Ventura.

In 2023, much of the commentary about the California economy explicitly identifies AI and machine-learning-driven predictive maintenance, robot control, and process optimization as actively eliminating manufacturing positions for human workers and slowing job growth relative to productivity improvements.  Manufacturing has led all other industries in layoffs across all counties. Layoffs peaked in 2023.

Eighty-four percent of total layoffs in the Information sector occurred in Los Angeles County. The TV, Film and Sound recording industry is a subsector of Information, and most downsizing has occurred therein, starting with the actors and writers labor disputes in 2023 and continuing with the rapid development of AI disrupting the film industry beginning simultaneously during the strike.

Tech jobs are principally represented by the Professional, Technical and Scientific Consulting services sector. This industry has experienced significant layoffs together with very little new hiring since late 2022.

Layoffs in Southern California hotels in 2024-2025 were due to a mix of weak demand, particularly from the international visitor, sharply rising labor costs, and hotel restructuring following the resolution of the hotel workers strike in 2024.  Hotels faced meaningfully higher labor costs from contracts and the attendant wage pressures that were negotiated during the labor dispute.  Staff levels were reduced accordingly, and many vacant positions were not filled. And on top of union deals, Los Angeles adopted a Hotel Worker Minimum Wage ordinance which will phase wages up to $30 per hour by July 2028 (for the Olympics) and this ordinance began increasing in 2025.

With two months of notices now included in our analysis for 2026, layoffs are already starting out strong.   We will continue to provide updates this year on the California labor market—both in terms of these WARN notices, and the monthly employment updates by the State. So stay tuned.

[1] WARN stands for Worker Adjustment and Retraining Notification. This is a U.S. labor law requiring employers with 100+ employees to provide 60 days advance notice of plant closings or mass layoffs, defined as 50 or more employees.

Mark Schniepp

February 2026

I asked Gemini what the key economic issues are in 2026.  Here’s what it said: “Today’s economic landscape is dominated by questions related to monetary policy, global trade and affordability . . .”

Then it proceeded to list seven principal concerns, and my response—the human response—follows each question.

Inflation & Monetary Policy: Will inflation remain stubbornly elevated, necessitating higher-for-longer interest rates, or will productivity gains allow for further normalization?

Human response: Inflation is not elevated now. It is not in steady decline either, and it is moving more so in a lateral fashion. Interest rates are higher because of this. Productivity this year from AI will definitely enable short term rates to be lowered and inflation to push in the direction of the Fed’s 2.0 percent target.

Economic Affordability: Can income keep pace with the rising cost of living, particularly for middle-income households, and how will consumer demand hold up?

Human response:  Currently, wages and salaries have kept just above the consumer cost of living pace, for not only middle income households but for lower income households as well. Will this continue during 2026? Yes. There will be fewer people employed in 2026 but continued wage growth exceeding inflation due to productivity gains.

Trade Policy & Tariffs: What will be the long-term impact of new tariffs and restrictive immigration policies on consumer prices and global trade tensions?

Human response: The impact is occurring now. There is some pressure on the Producer Price Index, which has moved higher over the last few months. Although economists are not certain, there is speculation that tariffs are pushing prices of imported goods higher.  There is simply not much clear evidence yet that tariffs are impacting consumer prices, but higher producer prices tend to drive prices of final goods to consumers higher.

Don’t worry about global trade tensions. That ship has sailed. Now producers of goods are learning how to navigate the current tariff structure. The year will be one in which governments and foreign producers acclimate to the current tariff environment now in place.

Labor Market Health: While the overall market remains stable, will the creeping increase in unemployment significantly impact entry-level workers?

Human response: It already has impacted entry-level workers. The unemployment rate for 20 to 24 year olds (high-school, community college and 4 year college graduates) continues to rise. The rate for older workers 25 and above is quite stable.

California

During 2025, the job creation in California was limited at just 55,000—all due to the healthcare and local government sectors. Employment in all other sectors of the labor market declined. The unemployment rate climbed to 5.5%. UCLA projects a similar rate in 2026, before the labor market starts tightening again in 2027.

Much of the recent weakness is due to the state’s technology sector, which is no longer the major driver of job creation that it was prior to 2023. Although much has been made about the current AI boom that is driving billions of dollars of investment, there is no clear job boost occurring.

While AI (and 75% of all investment in AI in the U.S. is based in California) is expected to power the next wave of growth in tech, AI adoption, implementation and proven results take time. A large share of firms are still navigating how to integrate AI into their operations, and the associated job creation will likely have to wait until 2027.  Job formation in the form of developing, maintaining, and overseeing AI systems is expected. New opportunities have and will continue to emerge in AI engineering, data science and data adaptation, AI training, AI ethics, and AI safety specialists.

Fiscal Sustainability: How will the U.S. and other nations manage record debt levels that are currently threatening long-term global growth?

Human response: I hate when anyone (or anything) leads with the word “sustainability.”  It is overused, akin to the word “existential.”  The more important claim here is “threatening” because in the U.S. now, growth does not appear to be hindered by our rising debt. However, the continuation of this trend will keep longer term interest rates higher and growth lower than potential unless it is managed and with some clear progress visible. Treasury Secretary Scott Bessent knows this well, and he believes the U.S. will “grow” its way out of debt.  It does not appear at all that Congress has the will to do much about this from the spending side. Consequently, until the situation worsens into a wake up call, we remain vulnerable to higher inflation, less private investment, less growth, and less job creation.

Economic Inequality: How can policy address the widening gap between the top 10% and the rest of the population, a long-term issue gaining increased attention?

Human response:  Usually the stock response is implementing more progressive income taxes, raising the minimum wage, or increasing budgets for public education including apprenticeship programs.  But all of these “solutions” have been put in place many times and in many forms over the last 75 years. Public education has been the biggest failure and taxation policies will be both unpopular and avoided. I just don’t like government programs because they seldom work and create unintended consequences.  Educating the workforce with meaningful and needed vocational direction will be the longest lasting solution towards reducing the inequality gap if we can find a mechanism to incentivize the private sector to prioritize this.

AI and Productivity: Will Artificial Intelligence investments drive sustainable productivity gains or create a “show me the money” bubble?

Human response: According to the Stanford Human-Centered Artificial Intelligence 2025 AI report, “AI business usage is accelerating: 78% of organizations reported using AI in 2024, up from 55% the year before. Meanwhile, a growing body of research confirms that AI boosts productivity and, in most cases, helps narrow skill gaps across the workforce.” ¹

Nevertheless, the consensus is now shifting towards a “show me the money” reckoning in 2026 where AI investment needs to justify its massive cost outlays. The AI bubble is now deflating.  The high valuations of AI companies have been under pressure in the financial markets over the last three months. Since early November, my stock value index for AI companies Palantir, AppLovin, Constellation Energy, American Micro Devices and Nvidia is down 32 percent, and at the lowest aggregate valuation since early July 2025.

¹ https://hai.stanford.edu/ai-index/2025-ai-index-report

Mark Schniepp

January 2026

Recent Labor Market Evidence

The November report on job openings and layoffs paints a picture of a U.S. labor market that continues to soften. Job openings declined further, and layoffs are rising, reflecting a clear and reduced proclivity by firms to expand their workforces.

The private sector experienced weak growth in the final three months of 2025, averaging just 29,000 net new jobs. This is down sharply from the 100,000 average in the first quarter of 2025. Furthermore, we expect weak growth to persist in 2026.

But while there is much less hiring and more separations occurring in the broad U.S. and California labor markets, the unemployment rate, though weaving and bobbing, is not projecting a worrisome condition. The most recent reports show the rates moving lower for both the U.S. and for California.

And in California, there are net job losses to date for calendar 2025.

Deportations are subtracting from the labor force and limiting its growth. Housing  remains a chronic constraint for
domestic migrants further limiting the California labor force.  Employers are finding workarounds by turning to more international hiring and/or more automated processes.

There will be fewer job opportunities in 2026 nationwide, and even fewer in California.

Healthcare and state and local public sector job growth are forecast to remain positive, along with skilled jobs in the professional services and industrial sectors. However, there is likely to be further downsizing in financial activities, information, manufacturing assembly, and retail/wholesale trade. Companies still need people who can run, manage, and improve the systems that are now part of routine business operations.Automation and AI will make work better. They replace humans in repetitive work allowing workers to focus on problem solving.  They also make operations safer, more efficient, and more predictable. They don’t slow down or get tired. And they only get better at what they do.

Be generally prepared for a jobless expansion, where goods and services growth will be relatively high but net employment growth will be stagnant.

This means there will be amplified competition for available jobs.

Tariff scare fading

There was some evidence that trade disruptions eased in December. The indexes for new export orders and imports expanded for the first time since the summer, when tariffs were at their height and much uncertainty about trade deal negotiations clouded the outlook. As new tariff actions have calmed down, and with new trade agreements in place, many firms have adjusted their supply chains to optimize sourcing and minimize costs. This is one reason the index for inventory purchases is trending higher.

Calming of the tariff hysteria will boost hiring in the logistics sector.  With less uncertainty this year regarding the modus operandi of the new administration, anxiety about new hiring will ease.

Tariff revenues are soaring now, producing record-setting revenues, which could provide some small reduction in the annual budget deficit.

Affordability squeeze

Inflation has clearly eased but Americans are still impacted by the fallout of the 2022-2023 inflation surge. As consumers, many are deeply unhappy with their financial situation, and with good reason. They are grappling with a severe affordability squeeze. Prices for many goods, from groceries to car insurance (and home insurance and gasoline in California), are high and continue to climb. Meanwhile, wage inflation (pay increases) is slowing due to the stalling of job creation and short supply of job openings.

Deportations are freeing up housing in many parts of the country and rent inflation has moved decidedly lower. In many regions of California rent inflation has subsided to less than one percent but housing costs are still too high for many individuals and families. Rental property vacancy rates have increased. According to Kidder Mathews and Lee & Associates, the rate in Los Angeles County is 5.3 percent, 5.0 percent in San Diego County, 6.0 percent in the Inland Empire, but due to limited inventory, is still 3.6 percent in Orange County.

This month’s outlook for economic conditions in 2026

Improvement in 2026 over 2025 is currently expected.  But new job opportunities will remain austere.  No risk of recession, but job seekers may not see it that way.

Inflation will continue to gradually deflate.

Interest rates—-both short and longer term—will decline.

Tariff fears will melt away.

And affordability concerns should improve. But prices for general goods and services are not going to decline.

Corporate America should be profitable in 2026.  The growth of earnings will be the result of productivity gains from AI, lower interest rates, and tax cuts which will push consumption higher. Analysts generally expect double-digit earnings growth for S&P 500 companies in 2026.

On January 1, 2026, Deutsche Bank predicted the S&P will reach 8,000 points by year-end, suggesting a gain of nearly 17 percent. Morgan Stanley, JPMorgan Chase, and Goldman Sachs are generally optimistic about the broader market indices for 2026, forecasting double-digit returns and significant earnings growth.

Mark Schniepp
December 2025

I have been whining a lot lately about the effect of rapid AI adoption by the business sector on the labor markets, especially in
California this year. The national economy continues to report job gains, while California shows virtually none. We are the tech hub of the nation, and that industry has reported more layoffs than other sectors.

A surge of capital is flowing into AI. Last year, private investment in AI totaled $109 billion in the U.S. with China and the U.K. under $10 billion. This year, AI investment in the U.S. will rise to an estimated $161 billion according to the Stanford Institute for Human-Centered Artificial Intelligence.

While uncertainty this year has been more elevated and has caused delays or postponement in hiring, the principal cause appears to be the advent of practical AI technology that is seemingly replacing workers in many industries.

Through October, there were 160,000 layoffs announced in California, or nearly 25,000 more than in 2024 over the same time period.  Both are the most of any state in the U.S.

This year, thousands of workers at Amazon, Intel, Salesforce, Apple, Meta, Paramount, Warner Bros. and Walt Disney Co. have lost their jobs.

The downsizing has contributed to California having the highest unemployment rate in the nation at 5.5 percent in August. Only Washington, D.C. has a higher rate.

And layoffs now appear to be accelerating. According to the most recent Challenger and Gray report, 48,000 layoffs this year have been due to the replacement of workers by AI, and over 30,000 of those were in October alone.

Layoffs in California are heavy in the technology sectors, the film, TV, and sound recording sector (i.e., Hollywood), in finance and in advanced manufacturing which includes aerospace parts, medical devices, and computer components like chips and boards.

The big loser of AI is the younger entry level workforce because AI systems can at least perform many of the tasks that new workers in their freshmen and sophomore years could do.

Aside from tech, AI is also replacing entry level jobs, in finance and professional services. But in Hollywood, workers of all ages have

been laid off or simply not hired because AI is being used to create content, produce realistic video derived from existing film, and generate the attendant sound for scenes, including full soundtracks. AI can create actors, reducing staffing costs and precluding the need for wardrobe, makeup, or training.

Locational settings all over the world (or universe) and large volumes of extras needed to create crowded scenes can now be realistically created by AI.

Runaway production to other states and countries has largely contributed to the lack of new hiring in film and TV, leading to the sale
of Paramount in August, and the now-for-sale status of Warner Bros.

2025 has been the most difficult year since the Great Recession (aside from the pandemic) for any positive job creation in the state, following two sluggish years in 2023 and 2024.

Nevertheless, Moody’s Analytics estimates AI spending this year has added more than half a point to U.S. gross domestic product, much of what you can see in the 2025 quarterly estimates for California. Consequently, we are experiencing what appears to be a jobless economic expansion.

A labor market rebound may be on the horizon

By one estimate, Silicon Valley tech giants will invest more than $400 billion this year in AI data centers, along with electric grid infrastructure. Amazon, which recently announced plans to invest up to $50 billion to expand its AI and supercomputing services for the U.S. government, will break ground on a 1.3 GW facility in 2026. In the short term, jobs will be created to construct and maintain data centers and their attendant infrastructure.

Tech sector employment may ultimately experience a rebound by 2027 with the presumed hiring of thousands of workers to clean up the untidy content of inaccurate images, text, videos and low-quality narratives generated by AI learning models since 2023.

Southern California has a deep history in aerospace and a large, experienced workforce in engineering and manufacturing. As part of a “re-industrialization of the area, private sector expansion of aerospace and other advanced manufacturing is now occurring in Los Angeles and San Diego Counties. El Segundo is becoming a hub for defense and aerospace start-ups. Hadrian Automation is expanding its aerospace component manufacturing facilities creating hundreds of new jobs in Torrance.

Furthermore, venture capital investments in the region more than doubled to $5.8 billion in 2025 Q2 compared with a year earlier. Costa Mesa-based defense tech company Anduril received the most funding, raising $2.5 billion according to research firm CB Insights.

Anduril leased a 190,000 square feet office campus at The Hive in Costa Mesa, and 163,000 square feet of industrial space in Santa Ana, both in September 2025. The facilities are expected to support a rigorous expansion of manufacturing, distribution and R&D operations.

Providing workers can be hired, the construction industry is flush with industrial, warehouse, residential and infrastructure projects. Tourism in California is likely to rebound from the modest downturn in international visitors in 2025, especially if global GDP moves higher as forecast.

Onshoring of manufacturing operations has been a major policy thrust of the Trump Administration though it will predominately occur in other states. Nevertheless, California will realize some direct and spinoff effects of an expansion in domestic manufacturing activity especially in the advanced technology and defense products. This should result in new job creation by 2028.

The Olympics are coming to Los Angeles in 2028. The estimated economic impact will be substantial. Current estimates have job creation at 75,000 workers in 2028, with spinoff effects lasting into 2029.

The UCLA Anderson Forecast calls for another stagnant year of job creation in 2026 but a rebound in 2027, with total wage and salary employment rising about two percent if the conditions we’ve described above fall into place.

We cautiously expect a rebound in job creation but not reaching the extent of the average annual numbers recorded in the past. The labor force in the region is not increasing that fast anymore and population will be contracting by the early 2030s.