Income tax cuts, AI infrastructure expansion and moderating tariff pressures shift risks from labor market cooling toward potential overheatingLOS ANGELES, March 4, 2026 /PRNewswire/ — The spring 2026 UCLA Anderson Forecast for the United States and California signals a meaningful shift in economic momentum since late 2025. In December 2025, the Forecast anticipated an economy “muddling through” amid tariff shocks and labor market stagnation. Three months later, the balance of risks has shifted toward reacceleration in 2026, fueled by income tax cuts, expansion of fiscal stimulus and sustained artificial intelligence investment.(PRNewsfoto/UCLA Anderson Forecast)While aggregate indicators point toward stronger growth, the Forecast also highlights continued structural imbalances. Nationally, productivity gains and capital spending remain strong, even as segments of the labor market continue to recover unevenly. In California, output growth continues to exceed national performance, but payroll employment remains subdued, underscoring the divergence between production and hiring.The National EconomyThe U.S. economy in 2025 was marked by tariff hikes, supply chain disruptions, reduced immigration flows and a record-setting 43-day federal government shutdown. Despite these headwinds, GDP expanded 2.2% for the year, remaining above the Congressional Budget Office’s long-run neutral growth estimate.Looking ahead, 2026 is expected to bring stronger growth. As the national report states, “With the immediate impact of tariff hikes largely realized, the stage is set for substantial income tax cuts to stimulate an economy already buoyed by lower interest rates and massive capital expenditures in AI.”The Supreme Court’s February ruling invalidating tariffs imposed under the International Emergency Economic Powers Act reduced the overall tariff burden. However, the report notes that “tariff uncertainty remains a permanent fixture of the economic landscape.” While some duties have been rolled back, substantial tariffs remain in place, and most of their costs were borne domestically and largely passed on to consumers.Capital expenditures on AI infrastructure are projected to reach roughly $660 billion in 2026 — approximately 2% of GDP. Hyperscalers continue to lead investment, though emerging constraints in energy supply, grid transmission capacity and chip depreciation costs may moderate the pace of expansion over time.The most significant policy shift entering 2026 is fiscal expansion through the One Big Beautiful Bill Act. Retroactive income tax provisions are expected to increase refunds and boost disposable income, while new incentives such as bonus depreciation are projected to stimulate private investment. Combined fiscal effects are estimated to add between 0.5% and 1% to GDP, with additional stimulus possible from refunded tariff revenues. Story continues The labor market, which stalled in 2025, is beginning to show early signs of improvement. The unemployment rate declined to 4.3% in January from its late-2025 high of 4.5%. Recent job gains remain concentrated in healthcare, and broader participation across sectors remains limited. Inflation pressures have moderated but remain above the Federal Reserve’s 2% target. A final spurt of tariff-driven inflation is expected in early 2026 before inflation gradually settles in the mid-to-low twos through 2027 and 2028.GDP growth is projected to approach 3% in 2026, supported by tax-cut-driven consumption and continued AI investment. Growth is expected to moderate in 2027 and 2028 as fiscal stimulus fades and AI infrastructure expansion stabilizes, though sustained productivity gains may provide longer-term support.The California EconomyCalifornia’s economy presents a contrasting pattern: strong output growth paired with weak payroll employment.As the March 2026 California report notes, “Normally, one would expect employment to grow in step with output and income; however, the opposite has occurred.” Using a monthly GDP methodology developed by the Forecast, economists estimate California’s fourth-quarter growth at 3.8% annualized, well above the initial 1.4% U.S. GDP estimate. The state has now grown faster than the nation for four consecutive quarters.Yet payroll employment declined in 2025, marking the first sustained contraction since the pandemic. The unemployment rate has remained above 5% for nearly two years. As of December 2025, it stood at 5.5%.The report characterizes the state’s structure as a “new bifurcated economy,” driven by AI, aerospace and other high-productivity sectors on one side, and slower-growing sectors such as construction, retail and segments of leisure and hospitality on the other. Venture capital concentration remains significant, with nearly 70% of U.S. venture funding flowing to California in early 2025.Encouraging signs are emerging in aerospace and computer systems design, where hiring has begun to recover. If sustained, these sectors could provide a basis for stronger employment growth in 2027 and 2028. Goods movement also shows improvement, with port activity and air cargo volumes rebounding to or above pre-pandemic levels.Housing remains constrained by workforce shortages, tariff-related input costs and financing conditions. Lower mortgage rates may spur some additional activity, but permit levels remain subdued and multifamily development is not expected to accelerate materially in the near term.California Forecast NumbersUnemployment Rates (Annual Averages)2026: 5.6%2027: 4.8%2028: 4.4%Total Employment Growth2026: 0.9%2027: 1.8%2028: 2.1%Non-Farm Payroll Jobs2026: 0.5%2027: 1.6%2028: 1.9%Real Personal Income Growth2026: 1.9%2027: 2.8%2028: 2.7%Residential Permits2026: 111,0002028: 126,000OutlookCompared to late 2025, when tariff shocks and labor market stagnation dominated the outlook, the March 2026 Forecast reflects a shift toward stronger growth in 2026. Nationally, the primary risk has moved from contraction toward potential overheating as fiscal stimulus, AI investment and improving labor conditions converge. In California, the central challenge remains translating high-productivity sector gains into broader-based employment growth.The UCLA Anderson Forecast’s spring 2026 economic outlook conference will be held on March 4 and will address fiscal expansion, AI-driven productivity gains and structural labor market dynamics.About UCLA Anderson ForecastUCLA Anderson Forecast is one of the nation’s most widely watched economic outlooks and was unique in predicting both the seriousness of the early-1990s California downturn and the strength of the state’s rebound. The Forecast was credited as the first major U.S. economic forecasting group to call the recession of 2001 and was among the first to declare the COVID-19 recession in March 2020.uclaforecast.comCisionView original content to download multimedia:https://www.prnewswire.com/news-releases/us-economy-poised-to-reaccelerate-in-2026-as-fiscal-stimulus-and-ai-investment-intensify-california-growth-outpaces-nation-despite-ongoing-employment-weakness-302703192.htmlShare this… Facebook Pinterest Twitter Linkedin Whatsapp Post navigationMesa police conducting active criminal investigation into massage business Will Banijay-All3Media Buy ITV Studios? Consolidation Is Name of Game
