UCLA Anderson Forecast: AI Investment Drives Growth Despite Economic Slowdown

UCLA Anderson projects a slowing U.S. economy through early 2026, with artificial intelligence investment continuing to support national and state growth, announced in a press release. The December 2025 forecast shows that AI-related capital expenditures surpassed $405 billion in 2025, up from an earlier estimate of $250 billion, with further increases expected next year.

According to the forecast, the national economy remains resilient but faces headwinds from tariffs, policy uncertainty, and a weakening labor market. Unemployment is expected to rise to 4.5% by the end of 2025, while inflation peaks at 3.5% in early 2026 before easing later in the year. Interest rates are projected to stay between 4.0% and 4.4%, preventing a return to pre-pandemic levels.

In California, the forecast describes a two-speed recovery. High-productivity sectors such as AI, aerospace, and advanced manufacturing continue to expand, supported by strong venture capital activity. However, construction, retail, and hospitality sectors face job losses due to elevated costs, deportations, and weak demand. The state’s unemployment rate has remained above 5.0% for over 19 months.

UCLA Anderson expects gradual improvement beginning in late 2026. California’s unemployment rate is projected to decline from 5.5% in 2025 to 4.6% in 2027, with total employment growth rising to 2.0% by 2027. Residential construction is also forecast to recover modestly as workforce and cost pressures ease toward the end of the period.