An economy increasingly driven by AI, venture capital and aerospace is helping California grow faster than the U.S. average, but unemployment remains usually high amid this technological change.
That is the latest conclusion from the respected UCLA Anderson Forecast, which was released before financial markets opened on Wednesday.
“California continues to present an unusual combination of superior economic growth and inferior employment performance,” according to the forecast.
The Golden State’s economy grew at a 3.7% annual rate in the first quarter, compared to the national average of 2.1%. When second-quarter numbers are released, UCLA Anderson expects the growth rate to have fallen to 1.8% because of disruption from the Iran war, but still be higher than a U.S. average of 1.5%.
The economists noted that In the first quarter six of the top 10 venture investments by dollar value in North America were made in the San Francisco Bay Area,
Despite the strong growth, however, unemployment in California now stands at 5.1% — a full percentage point higher than the U.S. average.
“A rising tide does not necessarily lift all boats, particularly when that tide is fundamental
technological change. There remain signs of concern in labor markets,” said Senior Economist Jerry Nickelsburg in his analysis.
One factor is deportations, which have led to declines in overall economic activity in some California communities.
But Nickelsburg said the AI boom should “result in overall tech employment increasing next year and accelerating the following year.”
The latest forecast is for California unemployment to average 5.2% this year, but ease to 4.9% in 2027 and 4.4% in 2028.
The state’s housing market is also lagging. “Even though the Legislature has made it easier to build new homes in California by superseding local restrictions, the number of new permits issued through July remained subdued,” Nickelsburg said, suggesting that tariffs and deportations have made home building more expensive and difficult.
“The loss of workers installing drywall, flooring, roofing, and the like will directly diminish the level of production,” he said. “Even though the unemployment rate in California is elevated, not everyone is suited or interested in this kind of work.”
