Unemployment in California projected to get worse as prices rise
AI-generated summary reviewed by our newsroom.
- California’s unemployment rate projected to rise to 6.1% in early 2025.
- Public sector and healthcare jobs drive growth as AI impacts private hiring.
- Lower inflation, interest rates and AI demand expected to boost economy.
California’s unemployment rate, the highest state figure in the nation in July, is projected to climb to 6.1% and stay around 6% next year, according to a new California Economic Forecast.
Mark Schniepp, director of the Santa Barbara-based forecast, said the new projection “factors in the weak labor market of 2025 which is weak due to artificial intelligence.”
Most job growth, it said, is in areas that depend on public funding, notably state and local government and healthcare, which haven’t been able to replace workers with AI.
The forecast, though, has some notes of hope.
“Last year, the base forecast for the California economy was for slower growth than the U.S. in 2025. That appears to have been the case although the U.S. numbers are due for a major revision,” it said.
But despite the lagging employment growth, “overall economic growth will be close to the nation’s, and then move slightly faster in 2027.” The jobless rate is projected to drop to the mid to lower 5% range in 2027.
Schniepp’s forecast is similar to a summer outlook by the UCLA Anderson Forecast, which projected a 6.1% unemployment rate in the first quarter of next year.
California’s July rate was 5.5%. The national rate was 4.2%.
Prices climb higher
The latest projections come as the federal government reported Thursday that the rate of inflation had jumped to 2.9% over the 12 months ending in August, the steepest annual rise since January.
Trump administration tariffs were partly responsible, but so were other factors, notably prices for gasoline, cars and shelter, such as rent.
There was some good news. Song Won Sohn, president of SS Economics in Los Angeles, said some of the increases are “short-term shocks.” With the job market appearing to stagnate, wage growth should stabilize, and inflation would cool, he said.
Schniepp also saw lower rates of inflation as well as interest rates, which should boost California’s economy by motivating consumers and helping promote activity in housing, vehicles and commercial real estate.
Also providing help could be more international tourists visiting the state, and expanded trade in the ports of Los Angeles, Oakland and Long Beach, Schniepp said.
Another potential reason for optimism: “The demand for AI software, chip design and production, web development, IT applications, services and systems, and data analysis is only going to strengthen in California, the nation, and the world. AI is booming; consequently, demand for data, data centers, software and energy to support data centers will remain a principal engine of growth for the California economy.”
This story was originally published September 11, 2025 at 9:42 AM with the headline "Unemployment in California projected to get worse as prices rise."
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