California is among the world’s largest economies, but the engines that drive it haven’t been firing on all cylinders.
The state has been buffeted by a litany of layoffs this year from Hollywood to Silicon Valley — and beyond. Economists cite several explanations, including contraction in the entertainment industry, displacements caused by artificial intelligence and overall uncertainty in the national economy.
This year, thousands of workers at Amazon, Intel, Salesforce, Meta, Paramount, Warner Bros. and Walt Disney Co. have lost their jobs. Even Apple just announced a rare round of cuts.
Seemingly no corner of entertainment and tech has been immune from the cost-cutting that has put workers on edge.
“People are hunkering down because they think a storm is coming,” UC Berkeley labor economist Jesse Rothstein said.
Through October there were 158,734 layoffs announced in California, compared with 136,661 for the same period last year. That was the most of any state, lagging behind only Washington, D.C., which has been hit hard by federal downsizing, according to outplacement firm Challenger, Gray & Christmas Inc.
Nationwide, the layoffs have topped 1 million so far for the year, the most since the pandemic, according to Challenger.
As in the late 1990s, there’s a disruptive technology at play again — artificial intelligence, which is fueling a Silicon Valley investment boom reminiscent of the build-up to the last tech bust.
AI has been cited in more than 48,000 of the U.S. job cuts this year, with about 31,000 of those taking place in October alone, Challenger said.
“AI is replacing some of the entry level jobs in tech. And yes, AI is actually replacing some jobs in Hollywood,” said economist Chris Thornberg, founding partner at Beacon Economics in Los Angeles.
Other factors are at work too. Intel Chief Executive Lip-Bu Tan emailed employees after the company lost $821 million in the first quarter that becoming more efficient was key to a turnaround. “I’m a big believer in the philosophy that the best leaders get the most done with the fewest people,” he wrote.
The layoffs have challenged the notion that engineering jobs are a safe and sure path to success, perhaps in a way not since the first tech bust.
The mood is glum as well in Hollywood, where a succession of challenges from the COVID-19 pandemic, the dual writers’ and actors’ strikes in 2023 and runaway production to other locales has taken a toll — and that was before the current wave of consolidations that is threatening more job losses, with Warner Bros. the latest studio on the block.
The downsizing has contributed to California having the highest unemployment rate in the nation at 5.5% in August, with the exception of Washington, D.C. — though the state’s large farm economy with its agricultural workforce is a big contributor to its persistently high rate, Thornberg said.
The rate is unchanged from July but up from 5.3% a year earlier. (More recent figures have been delayed by the government shutdown.)
The job insecurity is reflected in the percentage of workers quitting their jobs, which fell to 1.9% in August, a ten year low.
Yet for all the doom and gloom, there isn’t any consensus that the local, state or national economies are heading into a recession, even with President Trump’s erratic tariff and immigration policies that have whipsawed industries and created economic uncertainty for businesses.
Part of the reason is that job creation has held up, with the most recent report last week showing the economy added 119,000 nonfarm jobs in September, exceeding forecasts, even as the unemployment rate edged up a tenth of a point to 4.4%.
Another significant reason, of course, is the river of money flowing into AI. Last year, private investment in AI totaled about $109 billion in the U.S., with China and the U.K. under $10 billion, according to the Stanford Institute for Human-Centered Artificial Intelligence.
By one estimate, Silicon Valley tech giants will invest more than $400 billion this year in AI data centers. Amazon, which recently announced plans to cut 14,000 corporate jobs, said this week that it would invest up to $50 billion to expand its AI and supercomputing services for the U.S. government.
Moody’s Analytics estimates AI spending this year has so far added more than half a point to GDP and is helping keep the U.S. out of a recession.
Now, the bigger fear is that the spending is feeding a gigantic stock market bubble that has benefited higher-income consumers — while middle-class and lower-income workers worry more about keeping a job and a roof over their heads.
The volatile market was calmed last week only when AI chipmaker Nvidia reported strong earnings.
The University of Michigan’s consumer sentiment index fell to 51.0 this month, down from 53.6 in October, with a number above 50 indicating a positive sentiment. Survey economists point to persistent inflation and the loss of income.
To put the statistic into perspective, the index is lower than at the height of the Great Recession in 2008, and reflects what is called a K-shaped economy, with higher earners spending and lower earners not.
The effect has been so profound it’s not just reflected in the growth of luxury sales but in who’s spending at America’s two great consumer bellwethers — McDonald’s and Walmart.
Prices have risen so high at the country’s largest burger chain that sales to low-income customers have fallen while higher-income consumers are spending more. Walmart noted the same dynamic in its own earnings report last week.
Raul Anaya, co-head of business banking for Bank of America and president of its Greater Los Angeles operations, said that while layoffs by large companies are drawing attention, the bank’s recent survey of small and medium-sized business owners shows they are cautiously optimistic about the economy.
The survey, conducted in September, found that 74% think their revenue will increase in the next 12 months, though they would like to see a stabilization of tariff policies and a reduction in inflation and interest rates. Only 1% expected to lay off employees, while 43% said they expected to hire more workers.
“That’s fairly consistent with what I’m hearing from CEOs that I’ve been spending time with either over lunch or dinners that I regularly host throughout the last several months,” he said. He noted the Los Angeles region in particular is benefiting from the growth of aerospace and defense.
“There are those companies that are serving some of these growing industries that continue to build a greater presence in Southern California or L.A. They’re part of the supply chain ecosystem of these broader industry concentrations,” he said.
In another positive sign, venture capital investments in the region more than doubled to $5.8 billion in the second quarter, compared with a year earlier. Costa Mesa-based defense tech company Anduril received the most funding, raising a $2.5-billion funding round, according to research firm CB Insights.
That kind of money has spurred a hiring spree among scores of aerospace and defense tech companies, many of which were started by former employees of SpaceX, which has large operations in Hawthorne.
A report this year by the Los Angeles County Economic Development Corp. found the county’s aerospace and defense industries added 11,000 jobs between 2022 and 2024, with an average wage of $141,110.
And while high, the county’s unemployment rate of 5.7% in August is lower than a year earlier, when it was 6.1%.
Vast, a Long Beach company building a space station, started in 2021 with just a few dozen employees. A few months ago the figure was close to 1,000 and they were working in a recently expanded 189,000-square-foot headquarters complex — to cite just one example.
“There’s a lot of mixed readings out there. If you look at one set of indicators, you’ll see one economy. You look at the other set, you’ll see a different economy,” Thornberg said. “This is the strangest economy I have seen in 25 years I have been in this business.”
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