UCLA forecast sees tariffs, raids trigger California downturn

SACRAMENTO, the United States, June 18 (Xinhua) -- U.S. California's economy is on track to contract later this year as escalating tariffs and high-profile immigration raids sap confidence, squeeze supply chains and keep would-be workers at home, the University of California, Los Angeles (UCLA) Anderson Forecast warned in its summer outlook released Wednesday.

The quarterly report projected the state's unemployment rate would crest at 6.1 percent in the fourth quarter before easing to 5.8 percent in 2026 and 4.4 percent in 2027. California already shed 50,000 payroll jobs over the first four months of 2025, lifting joblessness to 5.3 percent -- more than a full point above the national average.

"Confusion and uncertainty about both immigration and trade policy have a negative economic impact on California," forecast director Jerry Nickelsburg told the Los Angeles Times. "You have widespread decision paralysis in investment, consumption, and hiring until companies know what the rules will be."

Key pillars of the Golden State's growth engine -- technology, durable goods manufacturing, logistics, and entertainment -- are either stagnant or shrinking as tariffs would rise input costs and restrict export markets, the research said, adding deportation sweeps in Los Angeles and other cities had rattled construction, hospitality, and agriculture industries that depend heavily on immigrant labor.

Higher borrowing costs are compounding the pain. Economists expected the yield on the 10-year U.S. Treasury note to peak near 4.7 percent this year. In comparison, consumer prices are expected to accelerate more than 4 percent on an annualized basis in the second half as import levies filter through supply chains.

Nationally, real gross domestic product is forecast to hover "close to zero" for the remainder of 2025, held down by an effective tariff rate of roughly 15 percent that erodes manufacturers' competitiveness and thins household purchasing power, according to the research. U.S. unemployment rate is expected to rise to 4.6 percent by December and continue to climb in 2026.

California's housing shortage remains acute. Only about 102,000 new units were likely to receive permits this year, well below the pace needed to ease affordability pressures since tariffs on steel, lumber, and fixtures, together with a shrinking construction workforce, meant the state was "unlikely to build its way out" of the crisis soon, the report said.

The outlook assumed no fresh trade shocks. Forecast economists warned that steeper tariffs, a spike in oil prices, or further political interventions in Federal Reserve policy could tip the national economy into a deeper recession and prolong California's downturn.