Mark Schniepp
Mid-October 2025
The Current Outlook from the Consensus
California economic growth remains positive and will close out 2025 with a higher unemployment rate but also higher growth in output than 2024. The overall growth in the production of goods and services has remained positive all year, due to higher worker productivity, ongoing new development of structures and infrastructure, and busier international trade activity at the Ports of LA, Long Beach, and Oakland.
The UCLA Anderson Forecast projects a slower 2026 relative to 2025, with growth approaching the longer-term average rate moving into 2027.
All of the tensions from the new trade policy ease in 2026 but midterm elections may elevate uncertainty again with legislative changes dependent on which political party obtains a majority in the House and Senate.
By 2027, businesses will have become accustomed to trade policy, tariff shifting or avoidance, and consumer substitutions. There will be a modicum of price inflation due to tariffs more apparent this quarter or in early 2026.
Small businesses are starting to respond to high input costs caused from tariffs by passing them along to consumers. In September, 31 percent of respondents to the monthly small business survey (by NFIB) plan to raise prices, up 5 points from August survey and the highest since June. Twenty-four percent of respondents reported raising prices in September.
IMF global growth projections have undergone upward revisions from previous forecasts of 2025 and 2026 growth suggesting a stronger economic position in 2027.
Esoteric Signs of Weakness
Conventional signs of economic weakness include slowing GDP growth, rising unemployment claims, and declining consumer spending. Because none of these conditions apply today, technically, the U.S. economy is nowhere near a recession.
Consumer spending rose sharply in August for the third straight month. Retail sales growth for general goods and food has also been steady. But recent income data show that the country’s richest households are responsible for a large proportion of the spending growth, enabling them to maintain expenditure levels despite higher prices due to inflation.
And certainly enough, throughout 2025, dubious signs of consumer anxiety have
emerged. The “Hamburger Helper” indicator suggests more weakness in the economy than the forecast consensus. Sales of the product are up 15 percent over the last 12 months. Packaged complete meal products like this tend to increase when economic conditions deteriorate because of the savings they offer.
The same is true for Hormel’s SPAM. The food maker reports growing sales of the canned product in 2025, attributing it largely to the higher prices of food products in general.
The consumer confidence and sentiment indices (by the Conference Board and University of Michigan) are currently at recession levels, signaling clear signs of dissatisfaction among Americans regarding their current and future prospects for spending, job opportunities, and income growth. A principal reason is the price of goods, which has risen 30 percent since the pandemic.
Layoffs are rising though not at seriously high levels yet. The cumulative total year-to-date
through August is at the highest number since the pandemic.
The rate at which workers are quitting their jobs is now the lowest in five years, suggesting fewer job opportunities. We already know this is a growing issue in the U.S. with the onset of Artificial Intelligence crowding out mostly new entrants into the workforce.
The unemployment rate for 16 to 19 and 20 to 24 year olds is 21.9 and 10.0 percent respectively. For everyone else, it’s under 5.0 percent.
Labor markets are indeed weak, but trauma due to unemployment is relatively absent so far. And at this point in time, due to the rapid change in which technology has transformed many job functions, the forecast for employment in 2026 is highly uncertain. There is a general non-hiring sentiment among California tech and manufacturing
companies as adoption of AI systems in software development, computer board and component design, web development, data analytics, and advanced manufacturing products continues to evolve.
It is likely however, that with larger participation by firms to adopt AI systems for their business functions, more jobs will be created to create, adapt, implement, maintain, and improve the technology across the spectrum of industry usage. While this concept has yet to be proven, there is a likelihood that in the short run, job creation may eclipse job disruption.
Employment growth is negligible in 2026 in the California forecast, but relative to 2025, a meaningful restoration of job growth does occur in 2027 including more broader based participation by industries. Our forecast generally has modest but positive job creation for the remainder of the decade but a return to a tight labor market is entirely absent.
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.
