December 5, 2025
AI-driven investment continues to propel national and state growth, but tariffs, immigration policy and weak labor markets restrain momentum across key sectors
Los Angeles (December 3, 2025) — The December 2025 UCLA Anderson Forecast for the United States and California describe a situation with two economic trends currently working in opposition. In some sectors of the economy, ongoing and optimistic investment in artificial intelligence infrastructure and rising income among high-wealth households drive the economy, while tariff-induced inflation, policy-driven uncertainty and a gradually weakening labor market indicate signs of sectoral weakness. The result is an economy expected to soften through the first quarter of 2026 before regaining strength later in the year.
In California, the outlook is further complicated by a bifurcated economy: AI, aerospace and other high-productivity sectors continue to expand, while construction, non-durable goods, leisure and hospitality, and government-funded services face significant headwinds. Deportations, elevated input costs, and weak job growth prolong an employment recession expected to last into early 2026, even as the state continues to outpace the nation in overall productivity.
