California's Economy Is Growing, but Most Workers Aren't Feeling It

California's economy is growing faster than the rest of the United States, but most workers aren't benefiting yet. A new report from UCLA's Anderson School of Management says big spending on artificial intelligence and aerospace is driving the state ahead. However, the report also warns that tariffs, high energy prices, and immigration enforcement could slow things down. Job growth across the state has remained very weak.

In the first three months of 2025, California's economy grew at a rate of 3.7%, far outpacing the national rate of 2.1%. The state is home to many high-tech and high-productivity companies, which helps explain the difference. Six of the ten largest venture capital investments in early 2025 went to companies in the San Francisco area. In the second quarter, 82% of all venture capital in the country went to California.

One standout deal was OpenAI raising $122 billion on March 31, valuing the company at $852 billion. In Southern California, defense tech company Anduril Industries raised $5 billion in May at a $61 billion valuation. SpaceX has also helped create many new aerospace startups in the region. The aerospace industry is growing thanks to more commercial flights, defense spending, and space exploration.

Despite all this investment, the state added only 138,500 jobs in the 12 months ending in August. California's unemployment rate was 5.1%, a full point higher than the national average. Senior economist Jerry Nickelsburg called it a 'bifurcated economy,' meaning it is split between thriving tech sectors and a struggling rest. He warned that a rising tide doesn't lift all boats when the change is driven by new technology.

Hollywood has been hit especially hard, losing about 57,000 jobs over the past four years as film production slowed. Major studios like Disney, Sony, and Amazon have all announced layoffs. Upcoming mergers could cut another 4,500 jobs in Los Angeles County. Even in tech, companies like Google, Salesforce, and Meta have been cutting staff despite earning billions from AI.

Job gains this year came mainly from healthcare, education, and retail — but the report doesn't expect those sectors to stay strong. Government budget cuts and federal policy changes are expected to slow hiring in those areas. A household survey found that 351,100 fewer people were part of California's workforce over the past year. That survey includes self-employed and farm workers who don't appear in standard job counts.

The report does offer some hope for the future. AI investment is expected to start creating more jobs in 2026 and 2028 as the technology matures. California's unemployment rate is forecast to fall from 5.2% this year to 4.4% by 2028. Personal income is also expected to grow, rising 2.6% by 2028.