The strong claims, weak foundations of California’s economy

To listen to Gov. Gavin Newsom, California is still the nation’s economic leader. In his April 9 news release, he crows, “California continues to outperform every other state.” Rosy reports from politicians are not an accurate barometer of real conditions.

According to the latest Bureau of Economic Analysis data, California’s economy expanded 5% in 2025. This was the 15th fastest rate in the country – not the fastest, as Newsom crows. It was faster than Texas (4.9%) but slower than Florida (6.3%).

Still, 15th is a top-third growth performance, not bad. But California’s longer-term growth comparisons are less favorable. Relative to 2020, for instance, the average annual growth rate in California was the ninth slowest of all the states – it’s in the bottom 10!

It’s the same story with the latest employment data.

California’s Employment Development Department released revised employment data that showed strong employment growth in January 2026 – a gain of 93,500 jobs. That’s good news.

But the one-month spike glosses over the longer-term growth malaise. January’s job acceleration followed a very weak 2025, which saw a meager growth of about 56,600 jobs.

A study we recently released of California’s job market illustrated that paltry job growth has plagued California since the end of 2022 – and despite the preliminary data for January 2026 it’s still not looking bright.

California knows what a strong job market looks like. Following the 2007-09 financial crisis, California’s economy roared back. On average, the Golden State created more than 300,000 jobs every year during this expansion – 3.1 million jobs in total. These job gains were broad based and benefited people working across many different parts of the economy. Like it has for decades, California was setting the growth standard for the nation.

Relative to this performance, California is now creating far too few jobs, far less than the nation overall, and at 5.4%, the state’s unemployment rate is higher than the national average of 4.3%.

Had the Golden State’s growth in jobs matched the national growth rate, there would be 1 million additional jobs in the state today. Had the current expansion matched the state’s job growth performance following the Great Recession, California would have 1.9 million more jobs today.

This lost potential growth is a worrying sign.

The reason for this deteriorating outlook is no mystery. California’s anti-growth policies are sapping the state’s economic vitality. Take the affordability crisis as an example. The average California household earns more money ($100,600) than the average U.S. household ($83,700).

Californians also pay more taxes, face higher housing costs, and must endure higher energy prices compared to the rest of the country. Once these inflated and unnecessary expenses are considered, the purchasing power of the average California family is 35% less than the purchasing power of the average U.S. family.

Then there are the state’s many other problems. California is one of the worst states for drivers due to its exceptionally grueling traffic, steep gas prices, and punishing auto insurance rates. The state also has the largest homelessness and unsheltered homeless problem in the country and significantly higher crime rates.

All these problems are interrelated. When the state imposes unaffordable energy mandates and makes it exceptionally difficult and costly to build housing, a high quality of life grows elusive for more and more Californians.

When these regulatory burdens and high taxes impact the supply side of the economy, they discourage businesses from expanding, which is why California’s longer-term growth rate is relatively slower than most other states. With less business expansion, there is less job creation and more poverty. It’s a vicious cycle that has been compounding over time and is now reaching troubling levels. This is the bad news.

The good news is that California can get its mojo back.

The state’s slow-growth, low-hire economy is caused by errant state and local policies. The same politicians who caused the problem can revitalize prosperity by implementing effective reforms. These policies should roll back California’s bloated state government, reform the state’s byzantine tax code, and reduce the costly regulatory roadblocks that inflate costs and sap the talent and energy of millions of Californians.

We can all agree that California is an extraordinary place. Beyond the best climate in the nation, we have exceptional economic advantages, including Silicon Valley and Biotech Beach. With the right reforms, policymakers can unlock these advantages and reignite the California Dream.

Download the new study “California at a Crossroads” at www.pacificresearch.org.