California’s sluggish economy deserves attention this year

from Dan WaltersCalMatters

This comment was originally posted by CalMatters. Sign up for their newsletters.

As the new year begins, there’s no shortage of political trends to keep Californians concerned, amused or perhaps terrified — especially the state’s transcontinental feud with President Donald Trump.

There’s the almost-announced presidential campaign of Governor Gavin Newsom, centered on his self-appointed role as Trump’s chief opponent. As Newsom continues to troll Trump this year, we may learn whether it continues to elevate Newsom as a White House favorite or becomes tiresome and off-putting.

In late 2025, Axios, a news website, reported this Newsom’s potential rivals are stepping up their efforts to undermine his candidacyclaiming that as a California progressive, he was unelectable.

Another point of political fixation is Newsom’s successful effort to rig California’s 52 congressional seats to help Democrats regain control of the House in 2026. Whether it works is a question that looms large over his presidential ambitions.

Another is the campaign to choose Newsom’s successor. So far, it has attracted a large contingent of Democrats without a clear leader yet. There is a theoretical possibility, with a dozen Democrats in the field, that the two Republicans could finish first and second in the June 2 primary and face each other for the governorship in November, despite the GOP’s very weak standing among voters.

This year’s election cycle also promises to be another clash of moneyed interests through dueling ballot measures, with those that raise or lower taxes at the top of the pile.

While political junkies can feed their habits this year, the deeper problem facing California will be its dying economy.

Newsom often boasts that California’s $4 trillion economy, if it were a nation, would rank fourth in the world. However, he saw zero net job growth since the end of the COVID-19 pandemic and recently seen a contraction in employment.

More than one million Californians in the labor force are out of work and the state’s unemployment rate, currently at 5.6%, is the highest the highest or nearly the highest of any country for several years.

The decline in employment has even affected the state’s signature sectors, most notably Southern California waning film and television industry and the Bay Area high concentration of technology.

The latter almost single-handedly supported the state’s economy and generated a huge chunk of tax revenue, but layoffs have multiplied as artificial intelligence is increasingly used, a syndrome that also affects Hollywood.

Persistent or even rising unemployment makes it more difficult for state and local governments to cover their budget deficits — thereby supporting pressure to raise taxes on state and local ballots. The sluggish economy also hampers efforts to improve two of the state’s most pressing socioeconomic problems, the highest in the nation poverty and unemployment levels.

Even Californians who have homes and jobs are feeling the economic crisis. Combining economic data with polling results, the Public Policy Institute of California recently discovered growing economic anxiety among Californians.

“California has one of the largest economies in the world, but many working Californians feel economically insecure (and) struggle to pay their bills, save for the future and balance work-life demands,” PPIC reported, adding that polling data “shows that pessimism about future economic opportunities has become even more prevalent amid recent economic volatility.”

As he moves into presidential campaign mode, Newsom has every reason to continue to brag about the state’s economy. But those running to replace him and state legislators must make 2026 the year they recognize that California has serious problems, get to the root causes, and do what they can to make California thrive again.

History tells us that taking prosperity for granted—think Detroit—is an invitation to economic ruin.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.