Perhaps California got \u201clucky\u201d again.<\/p>\n
The state\u2019s economy started 2026 as the nation\u2019s No. 2 performer \u2013 its highest ranking among U.S. states for business growth in just over a dozen years.<\/p>\n
That bit of Golden State economic sparkle was discovered by my trusty spreadsheet<\/a> in its review of state-by-state gross domestic product figures for the first quarter from the U.S. Bureau of Economic Analysis. This measure tracks swings in a broad collection of business output of goods and services, adjusted for inflation.<\/p>\n This math says California\u2019s overall economy grew at a 3.7% annual pace in the quarter. Only Washington state had a faster rate of expansion at 4.5%. North Carolina was No. 3 at 3.2%<\/p>\n While California has the nation\u2019s largest GDP \u2013 $4.4 trillion in the first quarter \u2013 it\u2019s rarely near the top of the charts for growth rates. The last time California ranked this high on this economic growth scorecard was in the fourth quarter of 2013.<\/p>\n What\u2019s the secret sauce?<\/p>\n California\u2019s information industry, driven by rapid advances in artificial intelligence, powered the early 2026 economic pop. Manufacturing had a surprisingly steep rebound, as did the \u201cprofessional, scientific and technical services\u201d group, which covers white-collar industries with high-paying jobs.<\/p>\n Contrast California\u2019s expansion with the nation\u2019s 2.1% GDP growth to start 2026, which included shrinking business output in three states: South Dakota, off 1.6%; Nebraska, off 0.9%; and Iowa, off 0.1%.<\/p>\n And California\u2019s economic arch-rivals? Texas\u2019 0.9% growth was No. 36 while Florida\u2019s 1.6% ranked 23rd.<\/p>\n This isn\u2019t the only business metric in which California ranked highly at the start of 2026.<\/p>\n Consider job creation. Statewide employment in the first quarter was 131,500 higher than a year earlier. That was the largest increase among the states at a time when the rest of the nation collectively added only 14,500 workers.<\/p>\n Why \u201clucky?\u201d<\/p>\n I frequently recall a chat many years back with a California critic who left the Golden State for employment that made him a cheerleader for the Texas business climate.<\/p>\n His thesis was that California was simply lucky and that its perceived anti-business bias would eventually lead to economic ruin. In his eyes, California was propped up by a string of successful entrepreneurs, primarily in technology, who were more the result of random business events than of any state-specific economic skills.<\/p>\n The notion of luck is seemingly an ill fit for his new home state, where fortunes were made by guessing where to drill a hole into the ground in search of oil. Worse, it\u2019s a huge misunderstanding of California\u2019s underappreciated and unique support system for out-of-the-box thinking that fits the state\u2019s pro-employee policies.<\/p>\n Let me give you a numerical example: venture capital, the nectar of big-scale business breakthroughs.<\/p>\n Investors offered young U.S. companies a total of $589 billion in much-needed seed money in the year ended in June, according to my spreadsheet\u2019s peek at PitchBook reports.<\/p>\n Bay Area companies got $411 billion \u2013 primarily to fund the battle for artificial intelligence supremacy. That\u2019s 70% of all VC funding, which spurs immediate business activity that could produce the next corporate giant or two.<\/p>\n Meanwhile, Southern California got $21 billion, or 4% of all venture capital investments.\u00a0That may seem small, but only New York City got more: $45 billion, or 8%.<\/p>\n The only other major venture capital hub in PitchBook\u2019s report near Southern California\u2019s investment level was Boston, at $20 billion, or 3%.<\/p>\n This seems to be a ringing endorsement from smart investors taking rather large risks: California ain\u2019t perfect, but if you want to change the business world, it\u2019s the place to be.<\/p>\n The GDP math shows how California\u2019s break-the-mold mentality pays off.<\/p>\n California has averaged 2.7% growth in its business output over the last 20 years. That\u2019s seventh-fastest among the states and well above the nation\u2019s 2.1% expansion pace.<\/p>\n The \u201cinformation\u201d industry, an economic niche dominated by tech-savvy folks who attract all that venture capital, accounted for 30% of California\u2019s GDP growth since 2006. Nationally, information was only 16% of U.S. GDP growth.<\/p>\n The information industry was more important to growth in just two other states: Connecticut, with a 45% share of its meek 0.8% historic annual expansion pace, and Washington state, with 35% of its 3.7% growth \u2013 second-fastest among the states.<\/p>\n Production perspective<\/p>\n Early 2026\u2019s swift economic start in California marked a notable improvement over recent GDP performance.<\/p>\n The state\u2019s economy grew at an average annual rate of 2.7% in 2024-25, 12th-best among the states and outpacing the 2.2% growth seen nationally.<\/p>\n Tops were South Carolina and Arizona at 3.3% per year. The worst? The District of Columbia, off 0.1% a year.<\/p>\n And the rivals? Texas\u2019 2.74% growth was No. 9 while Florida\u2019s 2.8% ranked No. 8.<\/p>\n Next, look back two decades, and 2026 looks impressive so far, too.<\/p>\n It tops California\u2019s average annual GDP growth of 2.7% since 2006, which is the seventh-fastest among the states and well above the nation\u2019s 2.1% pace.<\/p>\n The top growth over 20 years was in North Dakota at 4.2% per year. The laggard? Louisiana at 0.6%.<\/p>\n Texas topped California, up 3.5% annually, ranking No. 4 among the states. Florida trailed the Golden State with 2.5% annual growth, ranking No. 11.<\/p>\n Global stage<\/p>\n That GDP number is the hook for Californians who brag that the state has the world\u2019s fourth-largest economy.<\/p>\n The logic comes from a vanity scorecard that compares the state\u2019s GDP results with the International Monetary Fund\u2019s estimates of business output by nation.<\/p>\n And California\u2019s $4.4 trillion\u00a0first-quarter GDP would barely keep it at No. 4, based on the IMF\u2019s April forecasts of global economic performance for the year.<\/p>\n The world\u2019s top three economies have stable rankings: No. 1 U.S. ($32 trillion in GDP for 2026), followed by China ($21 trillion) and Germany ($5.5 trillion).<\/p>\n Then it gets tight. California starts 2026 a smidge ahead of Japan\u2019s $4.38 trillion, followed by the United Kingdom\u2019s $4.26 trillion and India\u2019s $4.15 trillion.<\/p>\n Just $85 billion of business output \u2013 or roughly a 2% gap \u2013 separates California and these three nations.<\/p>\n Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com<\/a><\/p>\n