California is pulling ahead of the rest of the country on growth, even while its job market drags its feet, according to UCLA Anderson economists in their spring outlook released Wednesday. Using a monthly-GDP method, the team pegs the state’s fourth-quarter growth at a 3.8% annualized rate, compared with an initial 1.4% U.S. GDP estimate. That gap underscores a widening split between high-productivity firms and the rest of the economy.
UCLA Anderson rolled out the spring numbers at its March 4 Economic Outlook event and emphasized that those output gains have not yet turned into broad-based hiring. Payroll employment declined in 2025, and the state’s unemployment rate stayed above 5% for much of last year, with December at about 5.5%, as reported by Times of San Diego.
A Two-Speed California Economy
The forecast team bluntly labels it a “new bifurcated economy,” where gains in AI, aerospace, and other high-productivity sectors power output while construction, retail, and parts of leisure and hospitality lag behind. The report also points to California’s dominant share of venture capital: nearly 70% of U.S. venture funding has recently flowed into the state, a concentration that helps explain how GDP can surge without a matching wave of job growth, according to UCLA Anderson Forecast.
Where The Jobs Are (And Aren’t) Coming Back
There are some bright spots. Hiring is starting to show up in aerospace and certain computer-systems positions, and port activity, along with air-cargo volumes, are rebounding above pre-pandemic levels, trends that could support Southern California’s goods-movement economy. Those pockets of strength, however, are still not enough to counter job losses in sectors that employ large numbers of Californians, as reported by The Times of San Diego.
What To Watch Next
The spring outlook projects that California’s unemployment rate will peak near 5.6% in 2026, then gradually ease to roughly 4.8% in 2027 and 4.4% in 2028, a trajectory that points to slow, incremental healing in the labor market. The Forecast highlights mortgage rates, tariff policy, and whether AI-led capital spending spreads beyond a relatively small cluster of firms as the key swing factors that will determine if output gains finally translate into broader hiring, according to the UCLA Anderson Forecast.
For many Californians, that means the recovery may feel uneven: big wins in venture-backed tech and aerospace alongside sluggish hiring in shops, hotels, and construction. From Los Angeles to the Bay Area, local leaders will be closely watching whether workforce training, housing initiatives, and supply-chain investments can turn those high-productivity booms into wider opportunity, even as headline GDP numbers improve.
