California’s economy has split between higher-growth areas such as Los Angeles benefiting from venture capital spending — and other areas hard hit by tariffs, uncertainty and the government crackdown on immigrant labor.

That’s the finding of the winter UCLA Anderson Forecast released Wednesday, which predicts the state’s economy as a whole will muddle through the coming months before growth picks up in the latter half of next year.

“California has now entered another bifurcated economy phase, not one between East and West, but one between AI, Aerospace, and the like, and the rest of the economy,” wrote Jerry Nickelsburg, senior economist with the forecast.

The report notes that in the first half of this year, nearly 70% of all U.S. venture capital spending came to California, while in the third quarter seven of the top 10 investments nationwide were here.

Los Angeles and Orange counties in particular are benefiting from investment in aerospace and defense firms, while the Bay Area has been the recipient of artificial intelligence investments, Nickelsburg said in an interview.

However, Silicon Valley itself has experienced job losses, the report notes, amid a weakening demand for software engineers who code — a dynamic The Times has reported on as big tech firms cut payroll while they sharply raise their investments in AI.

It was initially estimated that AI-related capital expenditures would total $250 billion this year, but already the amount has topped $400 billion, the report noted.

Another positive indicator has been an increase in air cargo at state airports, reversing a decline that began early in the pandemic, the report said.

At the same time, the Trump administration’s immigration policies have begun to dampen employment in California counties with a higher concentration of jobs in agriculture, construction as well as leisure and hospitality — with the San Joaquin Valley experiencing the largest number of job losses.

This is consistent with past episodes of restrictive immigration policies — deportations in 1930s under President Franklin Delano Roosevelt, in the 1950s under President Eisenhower and last decade through the Secure Communities program under President Obama, the report said.

“So what we do know from past data is that communities that see a significant loss of population due to immigration policy are communities where the unemployment rate of those who are left tend to go up, housing prices go down, income goes down,” Nickelsburg said.

Another drag on the state’s economy has been the housing market, which has been buffeted by deportations that will reduce the number of workers skilled in drywall, flooring, roofing and other specialities. At the same time, tariffs have raised the cost of building supplies from China, Mexico and Canada.

“That the home construction sector is in the doldrums is evidenced by the continuation of depression level sales volume for single-family detached housing and continued increases in median prices,” the report said.

Overall, the state lost 21,200 payroll jobs in the first eight months of the year, the first sustained decline since the pandemic. It left the state with a 5.5% unemployment rate in August, more than a percentage point higher than the nation. The rate has stayed above 5% for more than 19 consecutive months.

The forecast predicts that California’s unemployment rate will peak at 5.9% early next year but average at 5.5% before dropping to an average of 4.6% in 2027. Employment growth is expected to be 0.7% next year and 2% in 2027. Real personal income is similarly expected to rise just 1.1% next year before picking up to 2.6% in 2027.

The national forecast also notes that the economy is benefiting from investment in AI and rising income among wealthy households, even as tariffs, a weak jobs market and uncertain federal policies weigh on it.

That is expected to change early next year when Trump’s One Big Beautiful tax-and-spending bill stimulates growth — though the fluctuating policies and delays in economic data due to the federal shutdown make that uncertain.

“We continue to live in an era of elevated economic uncertainty regarding the economic trajectory,” the national report concludes.

Costco is suing the Trump administration, seeking a full refund of the import taxes it paid under President Trump’s executive orders earlier this year.

The discount retailer, a big importer, wants the U.S. government to stop imposing tariffs on goods Costco brings into the country until the Supreme Court weighs in on the legality of executive orders.

According to the lawsuit filed Friday with the United States Court of International Trade, Costco wants the court to declare that the president lacks authority under the International Emergency Economic Powers Act to set tariffs, and has challenged the tariff orders as unlawful.

Tariffs are taxes imposed on imported goods. Traditionally, tariffs are levied after getting congressional approval, but in February, Trump invoked a 1977 “national emergency” law — used for sanctions — to issue global tariff orders, bypassing the traditional process.

The Supreme Court is now deliberating the legality of the tariff orders.

“Whether Costco is successful through its lawsuit in getting compensated for the tariffs that it has already paid on its imports really depends on the Supreme Court’s decision on whether the president has the legal authority to impose tariffs,” said Devashish Mitra, a professor of economics and global affairs at Syracuse University.

Costco is the latest in a growing list of businesses, including motorcycle maker Kawasaki, beauty product maker Revlon and others that are suing the Trump administration for refunds if the Supreme Court strikes down Trump’s economic policy.

While there could be valid national security reasons under which the president has authority to set tariffs, tariffs on imports such as shirts or sheets are inappropriate and illegal, critics say.

“A blanket tariff on all types of imports from a country or several countries with a single stroke of the president’s pen will be very difficult, if not impossible, if other bases for tariffs are invoked,” Mitra said.

About a third of Costco’s U.S. sales come from imported goods, with major sources being China, Canada and Mexico.

In its suit, Costco highlighted that most imports from China faced a minimum 145% tariff, which has impacted its orders.

Trump has boasted that tariffs helped reduce the trade deficit, and as of October, brought in $205 billion in revenue for the federal government in 2025.

The policies have disrupted the retail sector and thrown every industry, from retailers to toymakers, into disarray.

Some have attempted to rework supply chains to source domestically or from countries not impacted by tariffs to keep costs low, while others are compelled to introduce products at cheaper price points for buyers to afford.

Companies are passing the costs onto consumers. Some are absorbing part of the additional costs and taking a hit to their profit to avoid raising retail prices too much.

Prices began rising immediately after the broader tariff measures were announced in early March and continued to increase gradually over subsequent months, with imported goods rising roughly twice as much as domestic ones, according to the National Bureau of Economic Research.

“We are going to do everything we can to mitigate tariff impacts,” Ron Vachris, CEO of Costco, said in a September earnings call. “The last effect would be we pass on price. If we do that, we are going to be the last one to go up and always [be] the first one to go down in any opportunities we have out there.”