By Manfred Keil and Robert Kleinhenz | Inland Empire Economic Partnership
The Inland Empire Economic Partnership released its economic analysis and forecast for 2026 at its State of the Region event last month. We presented the national and state outlook previously. Now, we’ll focus on the current economic situation in the Inland Empire and the short-term and long-term outlook. A subsequent piece will look at the housing market.
2025 was not an easy year for the Inland Empire economy. The Riverside-San Bernardino-Ontario Metropolitan Statistical Area, known as the Inland Empire (Riverside County and San Bernardino County), made it through the year primarily on the strength of a few industries. Looking at the region’s economic activity, we think of it as a house with a good view that is supported by three stilts. These are logistics, health industries, and local government expenditures, primarily public education. Take away one of the pillars, and the house will tumble. Over the last year, two of these three industries prevented the area from experiencing a significant number of job losses.
In 2025, there were only 3,200 job gains for the two counties, a 0.2% growth in employment. The two largest employment sectors — health and local government — created 24,400 new jobs, meaning all other sectors combined lost 21,100 jobs.
The logistics sector, the third largest employer in the region and the largest in San Bernardino County, lost 6,100 positions, continuing the “freight recession,” which started in mid-2022. Other sectors losing jobs were manufacturing (-3,500), construction (-8,200), professional and business services (200), financial services (-1,200) and information (-500).
The unemployment rate increased slightly from 4.9% to 5.1% during the year. However, this was due to the labor force growth outpacing the employment growth, which is a relatively healthy picture.
The unemployment rate ended up at the same level as the state unemployment rate, which currently is the highest among the 50 states. Both the Inland Empire and the California unemployment rates are a percentage point higher than the national rate.
Looking through 2026, job growth will be weak and will be adversely affected by national policies. Tariffs will have a lingering effect on logistics and cutbacks in Medicaid (MediCal) will temper growth in the health sector. Meanwhile, public education will face challenges in terms of funding cuts and demographics, with the number of school-age children continuing to decline. Most likely we will see a flat or shrinking labor force in the area.
In short, the Inland Empire economy may find itself treading water for most of the year. There are threats to the logistics industry due to the recent price increases at the pump. However, we assume the Middle East conflict will not result in oil prices last reached in 2022, when they were over $130 per barrel.
The long-term outlook for the Inland Empire must be viewed through the lens of today’s economy.
With 4.7 million residents, the region is already the state’s second largest metro area and the 12th largest nationally. The region will grow in the coming years, faster than the coastal counties but at a slower pace than in the past. The foundation of the economy will continue to be logistics, health care and population-serving industries. Because the region’s housing is more affordable than along the coast, and because the coastal counties offer a wider array of jobs, large numbers of workers will choose to live in the region and commute. At recent count, approximately 350,000 commuters endure long commutes. This includes younger members of the workforce, who grew up in the region and attended local colleges, but found more and better employment opportunities elsewhere, since there are too few well-paying job opportunities within the region.
The trajectory of the region can be altered by attracting and growing firms in industries that feature better paying jobs, including those for better-educated workers. These industries can lure workers back.
The challenge is to envision the future the Inland Empire wants and to undertake a strategic plan to realize that vision. The region can identify and attract growth-oriented industries that have the potential to move here and can work alongside the industries that currently support the regional economy. The region’s colleges and universities turn out thousands of graduates each year, but these numbers are not well reflected in the region’s educational attainment statistics: Only 25% of residents ages 25 to 45 hold at least a bachelor’s degree compared to 37% for the state and the nation. Higher paying firms are reluctant to move into the area. While the cost of living in the region is better than in coastal communities, firms that may consider relocating from elsewhere in the country will hesitate because housing costs in the region exceed those in other parts of the country with whom we must compete. The region must take steps to rein in housing costs if it wants to attract firms from outside the state. This means increasing the supply of housing beyond recent levels of new construction, and meeting the housing needs of all households, including market rate housing, affordable housing, and rental housing.
The Inland Empire Economic Partnership’s mission is to help create a regional voice for business and quality of life in Riverside and San Bernardino counties. Its membership includes organizations in the private and public sector.
