Thursday, March 26, 2026

San Gabriel Valley Economy Grinds in ‘Neutral’ as Small Businesses Bear the Brunt, Forecast Finds

Cal Poly Pomona report identifies Pasadena as the region’s primary office market and forecasts Eaton Fire rebuilding will add construction jobs in 2026

The San Gabriel Valley’s economy is growing but barely moving forward, constrained by the highest levels of economic policy uncertainty on record and rising costs that are hitting small businesses harder than anyone else, according to a new forecast to be released Thursday.

The 2026 San Gabriel Valley Economic Forecast, co-authored by Cal Poly Pomona economists Anthony Orlando and Gerd Welke and produced in partnership with the San Gabriel Valley Economic Partnership, describes the 31-city regional economy as “stuck in neutral” — avoiding recession but unable to gain speed. The report identifies Pasadena as the region’s primary office market and forecasts that Eaton Fire rebuilding in Altadena will generate more than 1,600 construction jobs this year, even as rent pressures near the fire zone persist.

The report was presented Thursday at the 2026 San Gabriel Valley Economic Forecast Summit at Diamond Bar Center. The event featured California State Treasurer Fiona Ma and a keynote address by Ambassador Carlos González Gutiérrez, Consul General of Mexico in Los Angeles, with an expert panel exploring the future of international trade relations with representatives from Mexico and Canada.

Economic policy uncertainty is the region’s biggest near-term problem, according to the report. The widely tracked Economic Policy Uncertainty index — which has measured uncertainty using newspaper coverage, tax provisions and forecaster disagreement since 1900 — peaked at 725 in March, a record. The most recent reading, in January 2026, stood at 387, nearly four times the historical norm, according to the report.

That uncertainty is making it harder for firms, investors and developers to plan, the report states. Small businesses — which account for 99.9% of California firms, according to the report — are under the most strain from tariffs, labor shortages, volatile energy prices and high borrowing costs.

“2026 will not be an easy year for the San Gabriel Valley economy,” the report states. But the authors add that tariffs, while costly, are not the region’s biggest problem. Strong trade flows through the Port of Los Angeles, alongside growing passenger and cargo activity at Ontario International Airport, are reinforcing the SGV’s role as a key logistics and warehousing hub, according to the report.

The region’s 1.8 million residents span a diverse economic landscape. Growth is stronger in technology-related industries, finance and healthcare, while retail, agriculture, education and food services face more pressure, the report found. Non-farm employment growth across the SGV is expected to slow sharply, from 1.7% in 2025 to 0.3% in 2026, with healthcare and public administration driving most gains.

In commercial real estate, Pasadena stands out as the region’s primary office market. The Upper San Gabriel Valley — which includes Pasadena, Arcadia and Azusa — saw office rents rise 2.8% in 2025 and retail rents surge 13%, according to CoStar data cited in the report. Industrial rents in that subregion fell 7.1%, reflecting a divergence from the East and Lower SGV, where industrial demand is rebounding.

The Eaton Fire’s impact on Altadena and the surrounding area figures prominently in the forecast. The January fire destroyed 9,418 residential and commercial structures and severely damaged another 1,078. As of early March 2026, only 3,013 rebuilding applications had been received, 1,748 building permits issued and just 17 new residential constructions completed, the report states, citing the LA County Recovers Permitting Progress Dashboard.

Rebuilding is expected to accelerate this year. The report forecasts that Eaton Fire reconstruction will add an estimated 1,640 construction jobs in 2026 and 2,870 in 2027, above baseline employment projections.

But the fire has also driven up rents near the burn zone. Multifamily rents in La Cañada Flintridge, Pasadena and Sierra Madre rose 2.0 to 2.6 percentage points faster than Los Angeles County overall in the year following the fire, the report found. The authors warn those increases are unlikely to be temporary, citing historical patterns in which fire-impacted communities experience further rent hikes as insurance rates rise permanently, older structures are replaced by newer and more expensive units, and homeownership rates decline.

Housing across the region remains severely unaffordable even with lower mortgage rates. By December, the median household in the Los Angeles metro area had to spend 80% of its income to afford the median-priced home — down slightly from 85% in January but far above the 52% to 54% required as recently as 2020, according to the report.

Home prices in the SGV fared better than the broader county. The 29-city average price change was minus 0.1% in 2025, compared with minus 1.8% for all of LA County, the report found. Pasadena home prices declined 1.5%.

The report also raises longer-term concerns. It warns of productivity losses from a potential shift toward a wartime economy, the difficulty and costs of building enough data centers to power the technology sector’s growth, and risks that investors and policymakers may be “blowing bubbles” by lowering the cost of debt and increasing lending to borrowers who may not be able to repay. Battery energy storage system projects have been proposed in several SGV cities, including Pasadena, Industry and Irwindale, the report notes.

Luis Portillo, president and CEO of the San Gabriel Valley Economic Partnership, said in the report that the region has demonstrated resilience and adaptability.

“With strong regional collaboration and a commitment to sustainable growth, we are well positioned to navigate uncertainty and continue building a vibrant economic future,” Portillo said.

Frances Teves, vice president for university advancement at Cal Poly Pomona and chair of the SGVEP Board of Directors, said in the report that the region’s role as a hub for business, logistics and culture is more important than ever given the uncertain international landscape.

The Cal Poly Pomona SGV Leading Economic Index — retooled this year to track conditions monthly — is currently weakly positive, indicating continued but modest growth in the months ahead. The authors forecast the index will improve in the first half of 2026 as tariffs ease and interest rates decline.

The 2026 SGV Economic Forecast Summit ran from 8:30 a.m. to 11:30 a.m. Thursday at Diamond Bar Center, 1600 Grand Ave., Diamond Bar. The full report is available at SGVPartnership.org/EconomicForecast.

“I have no doubt that our region will rise to yet another occasion and work together towards local, national, and global cooperation and prosperity,” Teves said in the report.