U.S. Economy Poised to Reaccelerate in 2026 as Fiscal Stimulus and AI Investment Intensify; California Growth Outpaces Nation Despite Ongoing Employment Weakness

Economic Outlook - The U.S. economy is expected to reaccelerate in 2026 due to fiscal stimulus, income tax cuts, and increased investment in artificial intelligence (AI) [1] - The shift in economic momentum is notable since late 2025, moving from stagnation to potential overheating risks [2] National Economy - In 2025, the U.S. GDP grew by 2.2%, despite challenges such as tariff hikes and a federal government shutdown [1] - Projected GDP growth for 2026 is nearly 3%, driven by tax cuts and ongoing AI investments [1] - Capital expenditures on AI infrastructure are anticipated to reach approximately $660 billion in 2026, representing about 2% of GDP [1] - The Supreme Court's ruling on tariffs has reduced the overall tariff burden, although tariff uncertainty persists [1] Labor Market - The unemployment rate decreased to 4.3% in January 2026 from 4.5% in late 2025, indicating early signs of labor market improvement [1] - Job gains are primarily concentrated in healthcare, with broader sector participation remaining limited [1] - Inflation pressures have moderated but are still above the Federal Reserve's target of 2% [1] California Economy - California's economy is experiencing strong output growth of 3.8% annualized in Q4 2025, outpacing national growth [1] - Despite this growth, payroll employment has declined, with an unemployment rate of 5.5% as of December 2025 [1] - The state is characterized by a "new bifurcated economy," with high-productivity sectors like AI and aerospace on one side and slower-growing sectors on the other [1] Forecast Numbers for California - Unemployment rates are projected at 5.6% in 2026, 4.8% in 2027, and 4.4% in 2028 [1] - Total employment growth is expected to be 0.9% in 2026, 1.8% in 2027, and 2.1% in 2028 [1] - Real personal income growth is forecasted at 1.9% in 2026, 2.8% in 2027, and 2.7% in 2028 [1]