Gov. Gavin Newsom (D-CA), viewed by many in his party as a likely 2028 presidential contender, was hit on Wednesday with data revealing the depth of his state’s economic challenges.
While stopping short of saying California is in recession, because “there is no firm definition” of the term, the UCLA Anderson Forecast concluded in a new analysis that “the data now indicate slow to negative economic growth and a further decline in jobs” this year.
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The state is lagging behind national averages in key economic indicators, and projections are getting worse, the report continued, according to the Sacramento Bee. California’s unemployment rate is predicted to rise from 5.3% to 6.1%, compared to the national jobless rate of 4.2%, according to experts.
“This decline in payroll employment does represent a mild contraction this year,” experts concluded.
The report follows official records that confirmed California had the nation’s highest unemployment rate in 2024, although it saw slight improvements in 2025 state rankings.
The latest UCLA analysis comes as the most recent data point signaling Newsom faces a long path ahead in addressing a breadth of economic difficulties facing the Golden State.
Earlier this month, state legislators passed the governor’s $325 billion spending plan after he announced in May that California is facing a $12 billion budget deficit. And state fiscal analysts have predicted the Golden State will have ongoing annual deficits of over $20 billion.
In March, the Golden State lost a net 11,600 jobs as private sector job losses exceeded increases in taxpayer-funded jobs. The taxpayer-funded jobs came predominantly from a California welfare program where the state pays residents to care for family members. The net job losses in March come after the state has lost nearly 200,000 private-sector jobs since 2023.
“Outside of government and health care, the state has added no jobs in a year and a half, ”the state’s nonpartisan Legislative Analyst’s Office reported last November.
California’s unemployment insurance fund has also run into major financial hurdles with bankruptcy as the state tries to keep up with burgeoning jobless claims. That means that when residents lose their jobs, the state doesn’t have enough reserves in the fund to pay unemployment benefits and has to borrow money from the federal government to finance the claims.
The fund is now $20 billion in debt to the federal government, leading the state’s fiscal office to call it “broken” in a recent report on the system.
“Under our projections, deficits would average around $2 billion annually for the next five years. 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,” the LAO’s December 2024 report read.