Next year’s economic outlook appears subdued, with projections indicating a modest growth rate of around 2% for the U.S. economy, according to James Doti, a prominent economist from Chapman University. Doti, who has been closely monitoring economic trends, noted that this marks a slight increase from the anticipated 1.8% growth in 2025 but remains across-the-board cautious about the state of the economy.
Doti emphasized that several factors have played a role in restraining economic expansion, particularly the tariffs implemented during Donald Trump’s presidency. He argued that these tariffs have had a detrimental impact on employment and economic vitality in California, leading to an outflow of residents and creating a difficult labor market. “If it weren’t for the tariffs, the economy would be much stronger,” he stated, attributing the downturn in part to the high tax rates that discourage population growth in the state.
The Chapman economists have identified a correlation between these tariffs and inflation rates, predicting a mild increase from the current 3% to 3.3% by mid-2026, before settling slightly lower at 3.1%. Despite ongoing concerns regarding inflation and recession, Doti expressed a belief that the current climate does not signal alarming immediate threats of economic downturn. “We believe we’re going to have a year pretty much like last year, with growth of around 2%,” he remarked.
One of the more troubling aspects of the economic forecast is job growth in California, which has markedly slowed down in recent years. Data show that from the second quarter of 2022 through June of this year, job growth hovered around a mere 2%, relegating California to the 48th spot among the 50 states in terms of job growth. The Chapman report predicts that job growth will continue to lag, with an anticipated increase of only 0.3% in 2026, translating to an additional 62,000 jobs statewide.
Furthermore, it highlights a concerning decline in advanced industries crucial for economic health, such as technology and aerospace, which have seen their presence diminish in California over the past few years. For instance, the percentage of advanced industry jobs in major urban areas dropped from 17.5% in 2018 to 14.9% in early 2025. Orange County, in particular, has struggled, with its job growth at only 1.6% since the pandemic, the lowest among major counties in California.
On a somewhat brighter note, Doti referenced the opening of new medical facilities in the county as a sector poised for growth, particularly in education and health, which is expected to grow by 3.8% in 2026. This growth is anticipated to counterbalance losses in other job sectors.
The real estate market in the area also reflects a mixed outlook. Following several interest rate cuts by the Federal Reserve, mortgage rates are projected to decline from 6.6% to 5.6% by 2026, making housing potentially more affordable. However, challenges remain in achieving meaningful growth in housing prices, restricted to approximately 2% due to ongoing affordability issues.
New residential construction activity is expected to remain steady at around 8,000 units, with an increasing share of multifamily units. Population dynamics will play a crucial role in shaping future construction projects, particularly as domestic migration continues to decline, despite a rise in foreign immigration.
Ultimately, Chapman University’s economic report echoes sentiments from other regional economic forecasts, which have demonstrated a cautious yet resilient outlook for the U.S. economy. It appears clear that navigating the complexities of tariffs, taxation, and labor market dynamics will be critical for economic growth in California and beyond as we move into 2026.
