California’s economy will remain under pressure into 2026, with federal tariffs and stepped‑up immigration enforcement keeping unemployment elevated, according to the December 2025 UCLA Anderson Forecast released Wednesday.
The report projected the state’s jobless rate will hold near 5.5 percent through early 2026, more than a full percentage point above the expected 4.5 percent national average by year’s end. California, the nation’s largest state economy with a GDP of about $4.1 trillion, currently has more than one million residents out of work.
Economists described the situation as an “employment recession,” noting that labor‑intensive sectors such as construction, manufacturing, leisure, hospitality and government services face mounting challenges despite ongoing investment in artificial intelligence and advanced technologies.
Tariffs imposed by President Donald Trump in 2025 are “continuing to move through supply chains, raising goods prices and placing pressure on consumers and small businesses,” the report said. The restrictions have hit California’s major gateways — the ports of Los Angeles and Long Beach — particularly hard.
The forecast also cited stepped‑up immigration enforcement, including deportations and workplace raids, as disrupting industries reliant on immigrant labor such as agriculture, construction and hospitality. The One Big Beautiful Bill Act, signed by Trump on July 4, authorizes substantial increases in enforcement funding in the coming years.
County‑level data already show double‑digit unemployment in agriculture‑dependent regions such as Imperial and Tulare, far above the statewide average.
The report predicted California and the broader U.S. will “muddle through early 2026 before experiencing stronger growth in 2026 and 2027,” while cautioning that the outlook hinges on whether Trump administration policies stabilize.