SCAG Quarterly Economic Report Tracks Growth and Industry Trends
Third Quarter, 2026
The SCAG Economic Roundtable met for its quarterly discussion on Aug. 20, focusing on the question of whether slow, narrow, and jobless growth can still be considered growth.
Key findings include:
- Gross domestic product (GDP) is growing, and unemployment is steady, but job creation has slowed, with only three sectors continuing to see meaningful job gains.
- Many roundtable economists suspect job declines resulted from baby boomers retiring and being “replaced” by AI instead of younger workers. Meanwhile, reported layoffs have remained fairly low.
- Established and emerging industries remain strong in parts of the region, including aerospace, defense, and tourism.
- Through June 2026, nearly 27,000 housing units were permitted across the SCAG region, 5,000 more than in the first half of 2025. Increases were driven by Los Angeles County, despite its population dropping.
- Additional county highlights include potential lithium development in Imperial County, concentrated job growth and labor force contraction in the Inland Empire, strong business sentiment in Orange County, and declining activity through the Port of Hueneme.
Supporting data for the full report are available on the SCAG Economic Trends Tool.
What’s Happening in the United States and California?
The U.S. economy is currently characterized by strong productivity growth in parts of the economy, persistently elevated inflation, and heightened geopolitical uncertainty. Strong output growth despite modest employment gains might be driven, in part, by accelerated AI investment, while uncertainty around inflation and war in the Middle East continues to complicate the economic outlook.
California continues to show relatively strong output growth alongside more modest employment gains. State GDP grew 3.3 percent year over year in the first quarter of 2026, compared with 2.7 percent nationally, while California employment grew 0.7 percent. As in the rest of the country, relatively strong output growth alongside modest job growth is consistent with stronger productivity growth.
California’s employment declines have been particularly pronounced in several higher-wage, white-collar sectors, such as Information, Professional and Business Services, and Financial Services jobs.
Slow, Narrow, and Jobless Growth in the SCAG Region
If the SCAG region were a country, its economy would rank 16th in the world behind South Korea and Spain, both of which have larger populations, but ahead of the Netherlands and Switzerland. It also has a GDP almost 40 percent larger than the San Francisco Bay Area (although the labor force in the SCAG region is 2.4 times larger than in the Bay Area).
Economic output has continued to grow—but at a slower pace than the state and nation. For the latest data available by county, inflation-adjusted GDP grew by 2.3 percent in 2024. This compares to 2.8 percent growth in the United States over the same period. The state economy grew by 3.2 percent in the same year. The roundtable expects to see similarly elevated GDP growth numbers for 2025 and 2026 for the SCAG region.
But in terms of jobs, the SCAG regional economy has not changed much from conditions that prevailed in 2025. The population is not growing, and employment growth is uncharacteristically low; yet the unemployment rate is not rising.
Year over year, the labor force shrunk by 2.0 percent, while resident employment fell by 1.6 percent. Hence, the unemployment rate fell by 0.4 percent—though this does not reflect a strong labor market.
For example, had the labor force in Los Angeles County not decreased by 6 percent, the county’s unemployment rate would have increased by a staggering 7 percent. It is currently 5.5 percent.
These labor market indicators suggest the region is entering a period of productivity-led growth or jobless growth: economic output is growing at a relatively higher rate, while employment growth is stagnating.
While this is an extraordinary and usually problematic condition, it is not concerning yet because major layoffs are not being observed in the labor market.
Some roundtable economists have taken the stronger output growth coinciding with shrinking employment as evidence of the effect of artificial intelligence (AI) on the economy. AI is still working its way through the economy, but job losses have been highly visible in the Information sector (note that only 2.5 percent of workers are employed in the industry).
The contraction in the labor force occurs amid longer-term demographic shifts affecting the region. An aging population, Baby Boomer retirements, as well as a historic drop in immigration beginning in 2025 (a source of the working-age population especially important in the SCAG region) can explain some of the shrinking labor supply. The SCAG region’s population is roughly the same as it was in 2016, though the median age has increased from 36 to 40 in that decade. Many roundtable economists suspected that job declines—despite fairly low reported layoffs—resulted from baby boomers retiring and being “replaced” by AI instead of younger workers. There is also the possibility that recent labor force trends were affected by the Census Bureau’s revisions to the population estimates.
The directionality of population change remains from coastal counties toward inland counties (255,000 down and 128,000 up, respectively since 2020)—widely understood to be caused by the differential in housing cost. Despite the SCAG region’s population decline, 286,000 new housing units were permitted during this six-year period—a remarkably consistent pace given past decades of boom and bust but still far below state targets that make up for historic undersupply. Further illustrating the difference between housing production and population trends, during this time, 188,000 of these units have been permitted in the region’s three coastal counties but only 98,000 in the three inland counties.
On the demand side, a smaller and aging population should be creating some turnover in the housing market, but Proposition 13 and other factors, such as historically low locked-in mortgage interest rates, limit turnover and increase inter-county and inter-regional moves that otherwise might not have occurred.
Half of the jobs created from June 2025 to June 2026 were generated by Health Care and Social Assistance (66,000 positions). This is followed by Accommodation and Food Services (16,000) and Education Services (15,000). The biggest losers were government, information, and construction. Economists expressed some concern regarding upcoming cutbacks in federal health expenditure and the effect they will have on employment in the health industry. In addition, declining enrollment will affect employment in public education (which falls within the local government sector). Finally, growth in logistics employment depends on imports into the ports of L.A. and Long Beach, which will be affected by tariffs set at the national level. Current job growth is narrow, and the outlook for the sectors driving it is uncertain.
Established and Emerging Industries Remain Strong in Certain Counties
Compared with the nation, the SCAG region has relatively high concentrations of employment in Information, Arts, Entertainment and Recreation, Transportation and Warehousing, and Health Care and Social Assistance, with these specializations varying across subregions.
With the exception of healthcare, the region’s other specialized industries have experienced declines or modest growth. The composition of recent growth also varies by wage level: several higher-wage sectors, including Information and Finance, have lost jobs, while much of the region’s growth has occurred in sectors with lower to moderate wages such as Health Care and Social Assistance.
Aerospace and defense show signs of strength, particularly in Los Angeles and Orange counties. Aerospace activity is concentrated in hubs including El Segundo, Hawthorne, Long Beach, Huntington Beach, Irvine, Santa Clarita, and the Antelope Valley. Recent investments include Anduril’s planned $1 billion, 1.2-million-square-foot development in Long Beach, expected to open in 2027, alongside its existing Costa Mesa operations and development of the Fury autonomous aircraft. The region is also seeing investment in defense technology and hardware firms in and around El Segundo. These activities point to potential for further growth in advanced manufacturing and defense technology, even as overall manufacturing employment has declined.
Orange County continues to show relatively strong economic conditions, characterized by low unemployment, improving business sentiment, and activity in healthcare and life sciences, tourism, defense, and advanced manufacturing. Business sentiment reached 72 percent in July, increasing for the third consecutive quarter.
In Los Angeles County, tourism and entertainment have shown signs of stabilization and near-term activity. Leisure and hospitality employment grew by approximately 11,700 jobs from a year ago, boosted in part by the World Cup, while film permit activity has recently stabilized following several years of decline. Expanded state film and television tax credits could support the production pipeline, although the associated activity has not yet been fully realized.
Housing Check-Up
Through June 2026, 26,975 housing units were permitted in the SCAG region, about 5,000 more than the same period in 2025. Housing permits have reached the highest mid-year level since 2022. The increase was largely driven by strong permitting activity in Los Angeles County in early 2026—in contrast to the county’s population loss in recent years.
However, labor availability may be an important constraint going forward. A recent analysis of the city of Los Angeles shows that the residential construction workforce has declined since 2019. This decline has been concentrated in structure and exterior trades closely tied to multi-family construction. The sector’s large non-citizen workforce might also make labor supply particularly sensitive to changes in immigration and enforcement activity. Meanwhile, site-delivered or factory-built housing may become a more significant part of housing production after years of limited adoption.
Population growth keeps inland demand strong, while infill housing continues to be produced in coastal counties. Nonetheless, long-term climate risks, such as extreme heat and energy grid pressures, in more affordable inland areas are becoming increasingly apparent.
Additional County Highlights
Imperial County
Imperial County continues to pursue economic development opportunities associated with geothermal energy and lithium extraction, but progress toward commercial production has been slow. Mining and construction employment has remained relatively stagnant, and projects continue to face planning, community, and environmental concerns. The county’s lithium resources remain substantial—a RAND analysis estimates that lithium extraction could support approximately 700 permanent jobs and 1,000 construction jobs if development moves forward.
A new Huanglongbing (HLB) quarantine is creating challenges for Imperial County’s citrus industry. Calexico is now under an HLB quarantine that will likely last at least two years. Because HLB is an incurable and highly destructive citrus disease, the quarantine adds new requirements for growing and moving citrus and could have longer-term operational and economic impacts on the county’s agricultural sector.
Los Angeles County
Trade activity through the ports of Los Angeles and Long Beach has increased for the fourth consecutive year, with container tonnage 4 percent higher than a year ago. Logistics employment, however, has continued to decline. So far, there has been little observable impact on cargo flows from the new tariff regime.
Orange County
Orange County’s labor market continues to be strong. Unemployment rates ranged between 3.5 and 4.2 percent in recent months, lower than the state rate and about the same as the national rate. While business sentiment has continued to improve, hiring plans have cooled slightly.
While the unemployment rate is only slightly higher than at the end of the Great Recession, the increase coincided with declines in both the labor force and employment, with employment declines outpacing labor force shrinkage.
Tourism and entertainment remain important to Orange County’s economy. Anaheim’s resort corridor continues to support service-sector employment, with continued investment in the Disneyland area and the development of OCVIBE.
Commercial real estate conditions are mixed. Industrial real estate continues to work through post-pandemic oversupply, with vacancies around 6-6.5 percent and negative absorption in the last quarter. Office vacancy is around 11-12 percent, down from last year, while retail space remains tight, with vacancy below 4 percent.
The median home price in Orange County is around $1.49 million, and rents are some of the highest in the country. High housing and state regulatory costs can pose risks to attracting and retaining young workers and to competing for talent and investment.
Riverside and San Bernardino Counties
The Inland Empire showed modest economic improvement in the second quarter. The seasonally adjusted unemployment rate fell from 5.4 percent in April to 5.1 percent in June, a 0.5 percentage-point improvement from a year ago and slightly below California’s 5.2 percent rate. The decline in the unemployment rate resulted from a shrinking labor force rather than expanding job opportunities.
Local job growth remained modest and was concentrated in Private Education and Health, primarily healthcare. Nonfarm employment increased by 10,600 positions (0.5 percent over the past year, yet Private Education and Health added 24,000 jobs, while the rest of the economy collectively lost 13,400 positions. Logistics, a major regional employer, stabilized and added 1,600 jobs, ending the recent period of contraction, or “freight recession.”
Long-term structural concerns include the region’s concentration of employment in a relatively small number of sectors. More than half of all Inland Empire jobs are concentrated in Private Education and Health, Logistics, and Local Government, leaving the region more vulnerable to sector-specific shocks.
Ventura County
Seasonally adjusted labor market indicators in Ventura County remain soft. From June 2025 to June 2026, the labor force declined by approximately 10,000 participants, while employed residents also declined by approximately the same number. The seasonally adjusted unemployment rate increased from 4.8 percent to 5.1 percent during this time.
Real taxable sales continue to decline, and population decline has resumed after a one-year respite. The housing market remains relatively stagnant, with low levels of existing home sales and fewer new homes permitted to date compared to 2025.
Trade activity through Port Hueneme has also declined this year. The total value of cargo moving through the port declined 8.4 percent, principally due to a 20 percent decline in export value, while import values were down nearly 8 percent. Automobiles represent the port’s principal import commodity, and the decline in imports may, in part, reflect the effects of tariffs.