California Governor Gavin Newsom, widely considered a potential 2028 Democratic presidential candidate, is facing new scrutiny over the state’s economic health following the release of a report from the UCLA Anderson Forecast on Wednesday.
The report outlines troubling trends for California’s economy, including declining job numbers, sluggish growth, and rising unemployment—placing the state well behind national averages.
According to the UCLA analysis, “the data now indicate slow to negative economic growth and a further decline in jobs” for the remainder of 2025.
While the report stops short of declaring a formal recession, it acknowledges the lack of a definitive benchmark for such a classification. Nonetheless, UCLA economists concluded that “this decline in payroll employment does represent a mild contraction this year.”
California’s unemployment rate is expected to rise to 6.1% this year, significantly higher than the projected national average of 4.2%. In 2024, the state had already posted the highest unemployment rate in the country, and while there has been some improvement in 2025, the state continues to trail the rest of the nation on key economic indicators.
The report’s release comes amid broader fiscal challenges for California. Earlier this month, lawmakers approved Newsom’s $325 billion budget, following his May announcement that the state faces a $12 billion budget shortfall.
Analysts have warned that California will likely see ongoing deficits exceeding $20 billion annually in the years ahead. California’s labor market has shown continued weakness.
In March, the state reported a net loss of 11,600 jobs. The loss came as job reductions in the private sector outpaced gains in government (taxpayer)-funded employment.
Much of the growth in taxpayer-funded positions came from a California welfare program that pays individuals to care for relatives, rather than from traditional economic sectors like manufacturing or tech.
Gavin Newsom’s Press Office, in a post on X, blames Trump’s tariffs and immigration raids despite the state’s economic issues existing well before Trump won the 2024 election.
Since 2023, the state has lost nearly 200,000 private-sector jobs. In a report issued last November, the state’s nonpartisan Legislative Analyst’s Office (LAO) stated that “outside of government and health care, the state has added no jobs in a year and a half.”
Adding to the state’s economic strain is the status of its unemployment insurance (UI) fund.
California’s UI fund is currently $20 billion in debt to the federal government. The deficit stems from the fund’s inability to meet demand for unemployment benefits amid rising claims.
Instead of relying on state reserves, California has borrowed extensively from the federal government to keep benefits flowing. In a December 2024 report, the LAO labeled the fund “broken” and projected deficits to continue.
“Under our projections, deficits would average around $2 billion annually for the next five years,” the report said.
“This outlook is unprecedented: although the state has, in the past, failed to build robust reserves during periods of economic growth, it has never before run persistent deficits during one of these periods.”
As Newsom continues to position himself on the national stage, the economic realities within California are expected to draw increasing attention. With mounting debt, rising unemployment, and continued fiscal imbalances, the state’s long-term financial trajectory remains uncertain.
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