The U.S. and California economies continue to face challenging conditions as a slowdown spreads across key sectors, particularly housing and employment, according to economic forecasts from UCLA Anderson and other institutions. Despite a brief improvement in the second quarter — with GDP growing 3.0% at an annual rate, beating expectations — deeper issues intensified by tariffs and weak consumer spending are restraining a full recovery.
The U.S. housing market remains under pressure, with construction spending in June falling for a sixth consecutive month, federal data shows. Residential construction dipped nearly 3 percent year-over-year, the lowest in almost two years. Single-family and multifamily builds are sharply down from last year, by 5.3 percent and 9.5 percent, respectively. Builders continue to struggle with higher material costs caused by tariffs and a persistent labor shortage, which makes it difficult to meet demand, even as buyers act cautiously.
However, the California Association of Realtors presents a more optimistic outlook for the state’s housing market, projecting a 10.5% increase in home sales and 4.6% price growth for 2025, suggesting regional variations in recovery patterns.
Mortgage rates remain high, largely due to the Federal Reserve’s decision to keep interest rates steady across five straight meetings. Yet, with job growth slowing and inflation a continued concern, the Fed is widely expected to cut rates at its September meeting. Fed Chair Jerome Powell noted that while “higher tariffs have begun to show through more clearly to prices of some goods,” their “overall effects on economic activity and inflation remain to be seen.”
Job growth has slowed sharply, construction lags, and business confidence remains shaken — clear signs that a robust recovery is not yet reality. In July, the U.S. added just 73,000 jobs, falling shy of the 100,000 expected. Earlier figures for May and June were revised downward by 258,000 jobs. Over the last three months, average monthly job gains were only 35,000, less than a third the pace of a year ago. Most job growth came from health care and social assistance, while sectors like manufacturing and government declined. Unemployment ticked up from 4.1 percent to 4.2 percent, and fewer people are looking for work, as labor force participation dropped for the third straight month.
Despite these challenges, layoffs remain at longtime lows, and wage growth is outpacing inflation, with average hourly wages growing by 3.9 percent over the past year, providing some cushion for consumer spending.
Tariffs are raising costs for businesses relying on imports, especially small businesses and farms. These increases trickle down to consumers, tightening budgets and cooling demand. Consumer spending rose only 1.4 percent in the second quarter, and private investment fell 15.6 percent, suggesting weak confidence. The Q2 GDP growth of 3.0% was primarily driven by a decrease in imports and increase in consumer spending, though these were partly offset by decreases in investment and exports.
UCLA Anderson Forecast economists project California’s unemployment rate to rise to 6.1% by the end of 2025, with the state’s economy growing slower than the U.S. economy this year. The Los Angeles County Economic Development Corporation projects real GDP growth for Los Angeles County at 2.1% in 2025 and 1.3% in 2026, a slowdown from 2024’s 3.4% growth.
There are modest signs of improved consumer confidence, but experts caution that progress remains fragile. The resignation of Federal Reserve Governor Adriana Kugler and the pending vacancy may prompt a more rate-cut-friendly Fed, though a cut may come too late to help all sectors. Kugler, who served as a governor since September 13, 2023, submitted her resignation to President Trump effective August 8, 2025, and will return to Georgetown University as a professor.
White House officials have highlighted the Q2 GDP report as validation of their economic policies, though some analysts note that the GDP figures might reflect short-term factors, such as a surge in imports that offset earlier contractions. The debate over the sustainability of the rebound continues as policymakers and investors monitor further data.
