Next year will be “not a blockbuster year” for the economy, according to one of Orange County’s leading economists, James Doti.
Last year, the Chapman University president emeritus and his team of economists predicted that the nation’s gross domestic product, used to measure economic health, would slow to 1.8% in 2025, from 2.7% the year before. According to their latest forecasts, growth in 2026 will reach a modest 2%.
Without going into detail about political comments, Doti said candidly that the economy would have grown more if President Donald Trump’s tariffs had not been implemented and if California had made efforts to reduce its high taxes. He blamed both countries for driving out part of the state’s population, leaving behind a difficult job market.
“Without the tariffs, the economy would be much stronger,” Doti said. “If we had not had this negative impact of customs duties, [offset] Thanks to the billions of dollars spent on AI and the accumulation of wealth we had, the economy would have been much stronger than the one we have today. There is no doubt that tariffs have an impact.
“My message for California and Orange County? It’s very clear: The focus needs to be on cutting taxes,” Doti said. “We are seeing the consequences of high taxes.”
See also: Chapman and UCLA economists see clouds in Trump’s policies
Tariff impacts
“The takeaway is that with all of these moving parts, all of these complications, all of these unprecedented policies and initiatives that we’ve never seen before — like the tariffs and the federal government shutdown — the bottom line is that we think we’re going to have a year pretty much like last year, with about 2 percent growth,” Doti said. “That should ease some of the anxiety of these two sets of prognosticators: one who thinks we’re going to have a recession, and the other who thinks we’re going to have a much bigger rise in inflation. We don’t see that.”
Trump has made tariffs on foreign countries a major administrative policy, saying they would raise the nation’s revenue and help create jobs domestically. Customs duties, which are paid in particular by consumers, cover most goods and affect all trading partners of the United States.
“We view tariff-related concerns about significantly higher inflation rates as overblown,” Chapman economists write in the report. “The fact that these rates appear to be constantly changing doesn’t make forecasting any easier, nor do the unprecedented reductions in government workforces.”
The report was co-authored by Chapman economists Raymond Sfeir and Fadel Lawandy.
Their forecast calls for a slight increase in inflation from the current rate of 3% to 3.3% by mid-2026, before returning to 3.1% by the end of the year.
Job growth stagnates
Since the rapid recovery from the pandemic-induced recession, California’s job growth has slowed significantly.
Over the three-year period from the second quarter of 2022 through June of this year, job growth in the state was just 2%. In a ranking of the nation’s 50 states, this lackluster growth places California in 48th place, according to figures cited by Doti from the Tax Foundation’s 2024 State Business Tax Climate Index.
The labor market continues to worry Chapman’s economists.
“Our forecast calls for California’s slow job growth to continue through 2026. On average, the 0.3% increase in jobs expected in 2026 translates to a gain of only 62,000 jobs,” according to the report. “Even more worrisome for California’s economic future is the marked decline in the number of advanced industries or high-value sectors such as technology, software development, aerospace and medical products.”
Compared to all advanced establishments in the United States, the percentage of these jobs in California’s major population centers fell to 14.9% in the first quarter of 2025, compared to 17.5% in 2018.
Except for the 1.9% job loss in tech-rich Silicon Valley, Orange County’s 1.6% job growth in the post-pandemic period from 2022 to 2025 was the lowest among the state’s major populous counties. The Inland Empire grew 3.3% during the period, while Los Angeles County saw 1.8% more jobs.
“Even more concerning is that Orange County’s growth over this period was one percentage point lower than that of the United States, excluding California,” according to the report, which projects virtually no growth for the county in 2026. “This is about the same as the job growth forecasts for the United States and California. The only employment sector in Orange County expected to see significant growth in 2026 is education and health, at 3.8%. This growth will offset losses in most other employment sectors.
Doti cited the recent opening of two medical centers as the county’s bright spot: City of Hope’s new six-story, 73-bed cancer specialty hospital in Irvine, with a staff of more than 700, and the 144-bed UCI-Health hospital, with a staff of 1,800. And next year, Hoag’s Sun Family Campus expansion will open.
Soft real estate
The Federal Reserve on Wednesday cut interest rates for the third time this year, underscoring a labor market that Chairman Jerome Powell said may be weaker than it appears. The central bank cut its overnight policy rate by a quarter of a percentage point, placing it in a range between 3.5% and 3.75%.
Still, the real estate sector is fragile, Doti said.
On the residential front, the Chapman forecast shows mortgage rates falling from an average of 6.6% this year to 5.6% in 2026, increasing housing affordability.
“As a result of the pandemic, a sharp increase in U.S. housing prices narrowed the housing affordability gap between the United States and Orange County in 2022,” according to the report. But since then, the gap has widened further.
Even with a projected decline in mortgage rates, lack of housing affordability will limit home appreciation to around 2% in 2026.
Other Orange County results in the forecast:
New residential construction: Measured by building permit activity, forecasts for 2026 indicate that activity will remain unchanged at nearly 8,000 units, with an increasing proportion of residential construction of multi-family units. In 2022, 51.9% of all new residential permits were multifamily. Forecasts for 2026 indicate that this percentage will increase to 68.2%.
Future construction activity: Much depends largely on population growth. In 2021, Orange County’s population decreased by almost 24,000 people. The surge in immigration under the Biden administration likely led to an increase in foreign immigration through 2024. This increase helped offset the continued net loss of domestic migration, leading to virtually zero population growth in 2024.
The population trend could, however, become negative again if foreign immigration falls sharply. “Given declining family formation, declines in documented and undocumented immigration, and declining birth rates, demand for new housing will be moderate,” although a drop in mortgage rates will lead to an increase in demand, the report said.
Chapman is the latest of a handful of Southern California universities to release economic forecasts – all of which read the tea leaves the same way.
Last month, Cal State Fullerton economists Anil Puri and Nira Farka predicted that the U.S. economy had demonstrated “remarkable resilience,” “surpassing dire forecasts not only by a narrow margin, but by a wide margin.”
And earlier this monthUCLA senior economist Clement Bohr told SCNG that the economy is expected to slow through the first quarter of 2026 before regaining strength later in the year. “There is a lot of uncertainty, but the turning point will really be in the first quarter, and we expect most of 2026 to be quite strong. You should see inflation stop rising early next year, as the tariffs will then have been passed through to final prices.”
