SCAG Economic Roundtable Update

Second Quarter, 2025

The SCAG Economic Roundtable met for its second 2025 quarterly discussion on May 22. Below are key insights from the conversation: 

• The Economic Roundtable flagged a severe risk of regional downturn as tariffs, federal funding cuts, and collapsing consumer confidence pressure several key industries.

• In response, the Economic Roundtable emphasizes the importance of reinforcing Southern California’s core economic drivers, with particular attention to sectors weakened by recent technological and policy shifts.

• To mitigate economic threats and spur new growth, the Economic Roundtable recommends focused support for innovation and entrepreneurship, strategic incentives for film and television production to retain local jobs, expanded manufacturing onshoring, and urgent reforms for the California Environmental Quality Act to unlock clean energy and housing development.

More detail can be found in the report that follows. Supporting data are available on the SCAG Economic Trends Tool.

Severe Economic Warning Signs

• The region’s labor market is weak, with growth of only 15,500 nonfarm jobs in the 12 months ending April 2025.
• Once again, the only three sectors with job increases were healthcare and social assistance, local government, and logistics (wholesale trade plus transportation and warehousing). Jobs dropped in every other industry.
  • Of these three sectors, logistics is not principally taxpayer financed—most local government jobs support public schools, which are serving a declining student population. 
  • Upcoming tariffs, as well as major cutbacks in federal healthcare and education spending, will negatively impact these sectors, raising the real possibility of the region’s total job count declining.
  • Exposure to these risks differs by county—the three sectors represent 54 percent of Imperial County jobs, 49 percent of Inland Empire jobs, 40 percent of L.A. County jobs, 36 percent of Ventura County jobs, and only 31 percent of Orange County jobs.
• Two notable business closures bring unwelcome news. The Phillips 66 refinery in the South Bay is closing, which will reduce in-state refining capacity by 9 percent and could dramatically increase gas prices by the end of 2026. This would add further cost pressure to the logistics industry. Spreckels Sugar announced the closure of its century-old Brawley sugar beet farming and refining facility to move its sugar allocation out-of-state—they employ nearly one percent of the county’s workers and harvest fields the size of the city of Temecula.
• Nearly every measure of economic uncertainty is now at an all-time high, including the Economic Policy Uncertainty Index, the Monthly Trade Policy Uncertainty Index, and the University of Michigan’s Consumer Sentiment Index. The University of Michigan’s Consumers Inflation Expectation has tripled since November 2024 to 7.3 percent. Uncertainty in the U.S. economy generally reduces investment, reduces growth opportunities, keeps interest rates high, and increases recession risk.
• While interest rates are still moderate by historical standards (the 30-year fixed rate mortgage is roughly 6.9 percent), the prior expectation of Federal Reserve rate cuts during 2025 is fading—no movement is anticipated until the second half of the year. 
• Strict immigration enforcement is almost certain to tighten labor supply. This will have a restrictive effect on new development, driving up construction labor costs while rebuilding from the L.A. County wildfires. This will also affect leisure, hospitality, and agriculture, likely increasing prices for food and food service.
• While tariff policy suggests that onshoring manufacturing jobs is a federal policy goal, benefits are less likely to accrue to our high-cost region, in which manufacturing jobs declined another four percent in the past year. One example is drone tech manufacturer Anduril, whose headquarters remain in Costa Mesa but has chosen to open its new manufacturing plant in Ohio. 

Checking In On Southern California’s Key Clusters 

• Television, film, and sound recording jobs remain well below 2022 levels but have not dropped further in recent months.
  • The state’s film tax credit program is still in the governor’s budget, and Los Angeles has responded with permit streamlining and lower fees for filming in several iconic locations. 
  • While these efforts aren’t expected to restore the losses of recent years, they are meaningful given the extremely high multiplier and agglomeration effects on TV and film in Southern California.
• Tourism indicators have been largely flat despite concerns over international visitors staying away.
  • Hotel occupancy rates have held and were strong during the Coachella and Stagecoach Festivals. This stability suggests that economic uncertainty won’t meaningfully impact the demand for leisure activities, and that locals may be filling any gaps left by international tourists. 
  • Disneyland’s reintroduction of the SoCal resident ticket offer has kept visitor counts high despite the risk of fewer international visitors.
• Transportation and Warehousing employment have not dropped following tariff news; however, shipping activity is expected to decline precipitously in the coming months, which could then affect inland warehousing activities and jobs, particularly in Riverside and San Bernardino counties. Businesses built up inventories early in the year, anticipating tariffs to begin this spring.
  • While tariff uncertainty harms logistics-related industries, there is some optimism that if the tariffs now coming into effect remain below the extremely high levels originally proposed, the important holiday season shipments (which typically begin in August and peak in September) will not be deeply affected.
  • Logistics, comprising wholesale, transportation, and warehousing reflects nine percent of the region’s jobs and 12 percent of its GDP and is the only recent growth industry that is not heavily government-supported.
• Technology, software, and advanced manufacturing still hold some of the best promise for innovation and economic development. While Orange County MedTech and defense examples stand out, artificial intelligence (AI) appears to be substantially reducing jobs.
  • Statewide employment in software development is roughly 15 percent below its peak level which occurred prior to ChatGPT’s introduction in 2022.
  • Advanced manufacturing jobs in L.A. and Orange counties are five percent below their peak in early 2024.
  • There are 50,000 fewer jobs in Professional Business Services in the SCAG region than in late 2022—these include a wider range of AI-impacted white collar jobs including cybersecurity, human resources, and customer service.
  • While AI stocks have soared, like any major disruption, AI’s impact on the labor market yields winners and losers. Since Southern California lacks the tech giants of the Bay Area, more pain is expected here.
• Housing and nonresidential development
  • Through April, new housing unit permits are two percent above their 2024 pace, but 19 percent below their recent high point of 2021.
  • Persistently high interest rates and low inventory have resulted in existing home sales reaching their lowest three-year volumes since 1984-86.
  • Development had been buoyed by a strong entitlement pipeline and housing demand from demographics; however, headwinds do not appear to be easing.
  • Some bright spots remain, owing to the region’s size and unique attributes. These include the 2028 Summer Olympic and Paralympic Games, specialty healthcare and medical technology such as the University of California, Irvine’s new hospital. ongoing investments at the Irvine City of Hope campus, and good groundwork by the California Jobs First Initiative, which have provided important “pre-development” investment in priority sectors in the region, job creation, and grassroots economic development projects.

Opportunities and Solutions

• Population growth is expected to be modest in coming decades. After decades of struggling to provide housing and infrastructure for more people, this revised outlook is an opportunity to focus on quality over quantity in public services, while investing more in human capital and expanding opportunities. 
• The region’s unemployment rate has remained stable at around five percent for the last three years. Slower growth in the size of the labor force has blunted the effect of weak job growth, but a stable unemployment rate doesn’t reflect regional economic health given that most industries have lost jobs recently and the sectors that haven’t are at risk in the current federal policy environment.
• It is possible that if tariffs remain moderate, the adverse impacts on logistics and related industries will be minimal. Certainty from, and trust in, federal economic policy is crucial if the benefits of trade will again benefit firms and workers. 
• Republican administrations have, in living memory, tackled comprehensive immigration reform when labor markets needed it (they do now). In Southern California, it is especially important that immigration levels respond to the region’s economic needs. 
• With the federal government largely abandoning its funding of research and new technology, the job of fostering innovation now falls almost entirely on the private sector. Its contributions must be nurtured if the state is to maintain its chief economic growth engine since the mid-20th century. This is the opposite of China’s extraordinarily effective industrial and engineering workforce policies since 2000. 
• Changing federal priorities also highlight the need to support entrepreneurship and a favorable investment climate for small and large businesses. Examples could include incubators, local permit streamlining, state insurance market solutions, and ensuring that community colleges and trade education remain solvent. Efforts such as these can help maintain capacity in the clusters and the knowledge economy where the state and region have a comparative advantage. 
• The roundtable unanimously agreed that the largest and clearest policy lever that exists to improve the region’s economic position is substantial reform of the California Environmental Quality Act (CEQA). As California aims to increase housing supply and generate clean energy, and as federal policy moves toward onshoring, the state must be ready to build and redevelop, which requires ending the inefficient delay tactics enabled by the law which often benefit very narrow constituencies. The roundtable strongly recommends an intentional, united advocacy effort from the SCAG region in particular.