A new economic forecast released Thursday by Cal State Fullerton researchers projects that the U.S. economy will avoid a recession in 2027. However, Southern California is expected to experience sluggish job growth and persistent housing affordability problems, according to the report.
The forecast, prepared by economists Anil Puri and Mira Farka of the university’s Woods Center for Economic Analysis and Forecasting, detailed both national and regional economic outlooks. While national economic growth is anticipated to continue, largely fueled by artificial intelligence (AI) investment, employment gains in the Southern California region are projected to remain limited.
For Orange County, payroll employment is expected to remain essentially flat in 2026 before seeing a modest increase of 0.44% in 2027. Southern California’s overall job growth is predicted to be subdued over the next two years. The researchers anticipate unemployment to rise in 2027 before declining in 2028. Defense and aerospace technology were identified as a source of regional job growth, with more than $4 billion in venture capital investment noted in Los Angeles-area defense technology companies.
Housing affordability is expected to remain a significant challenge, particularly within Orange County. Median home prices in the county have risen an average of 4.6% annually since 2023, a pace higher than the 1.5% seen in Los Angeles County and 1.9% statewide. Orange County’s housing inventory remains approximately 33% below pre-pandemic levels, with about 4,900 homes currently listed for sale. Mortgage rates, exceeding 7.4%, have discouraged homeowners from selling. The economists expect home prices to remain within a 2% range over the next year.
Nationally, the forecast predicts a period termed “growthflation,” characterized by annual gross domestic product growth in the mid-2% range, inflation in the mid-3% range, and unemployment in the mid-4% range. Investment in AI infrastructure is expected to contribute between 0.9 and 1.1 percentage points to national real GDP growth. In California, AI investment accounted for an estimated 37% of real GDP growth in 2026. However, despite attracting 51% of national AI venture capital funding, California accounts for only 1.2% of the nation’s planned data center construction pipeline. Researchers cited high electricity costs and regulatory hurdles as factors limiting data center development in the state, noting nine data centers under construction in California compared to 184 in Texas and 135 in Virginia.
Regarding employment, AI technology has generated an estimated 845,000 jobs nationally in technology development and infrastructure-related trades. Concurrently, it has displaced approximately 380,000 workers in occupations such as customer service and administrative support. The researchers describe this emerging pattern as a “Y-shaped” labor market, with gains in some occupations and losses in others.
The report also examines wealth distribution, challenging the characterization of the U.S. economy as “K-shaped.” Instead, the researchers describe a “G-shaped” generational wealth divide, noting that households headed by individuals older than 70 hold 33.6% of national wealth, while those headed by individuals younger than 40 hold 6.5%. The forecast found that the bottom 20% of earners account for about 9% of U.S. consumer spending, a share roughly consistent with the 1980s. Although lower-income households experienced some wealth gains during the pandemic, about 90% of those gains occurred in 2020 and 2021, largely due to government transfers. Inflation has since eroded much of that progress.
Finally, the report warns that disruptions to global diesel supplies could contribute to continued inflation in transportation and consumer goods. Refinery disruptions in Ukraine and the Middle East have driven diesel refining margins above $100 per barrel, increasing costs for freight and other industries dependent on refined fuels.
