BMO Business Outlook: AI‑Led Investment Driving Growth Across the Pacific, but Execution Remains Uneven

• AI‑driven capital investment remains a powerful growth engine, particularly in Northern California and parts of the Pacific Northwest, though job gains lag
• Businesses emphasize liquidity, margin protection and selective investment amid affordability and labor‑market constraints
• Execution and discipline—not broad expansion—define strategy as conditions improve unevenly across the state

LOS ANGELES and SAN FRANCISCO and SEATTLE, March 18, 2026 /PRNewswire/ - BMO today released its BMO Business Outlook for California and the Pacific Northwest, showing companies across the region moving from caution to selective execution as planning visibility improves, even as economic conditions remain highly uneven by region and sector.

Across the Pacific, business leaders are prioritizing disciplined capital allocation, liquidity management and practical AI deployment to strengthen competitiveness. While AI‑related investment and infrastructure spending continue to support growth—particularly in Northern California and parts of the Pacific Northwest—the benefits are not translating evenly into labor markets, reinforcing a focus on productivity, efficiency and resilience rather than expansion for expansion's sake.

Rather than pursuing broad‑based growth, many Pacific‑region companies are emphasizing targeted, high‑return initiatives—modernizing operations, selectively deploying AI, and tightening capital frameworks to navigate affordability pressures, labor constraints and still‑selective credit conditions. Execution is increasingly defined by where companies invest, not how fast they grow.

A defining theme of the Pacific outlook is that 2026 is shaping up to be a year of execution on AI and capital discipline. Companies are moving beyond experimentation toward measurable AI deployments that improve forecasting, streamline workflows and support operational flexibility, while pairing technology adoption with careful change management.

"Across the Pacific, companies are being highly selective and intentional about where they deploy capital," said Tony Sciarrino, Head, BMO Commercial Bank, U.S. "AI investment remains a powerful tailwind, but success is coming from disciplined execution—pairing technology with strong liquidity, margin focus and realistic growth expectations in an uneven operating environment."

National backdrop: solid supports, uneven conditions—and execution as the differentiator 

BMO's Business Outlook notes the U.S. economy has meaningful supports in 2026, including AI‑driven business investment, even as risks remain elevated around trade policy, inflation dynamics and geopolitics. Capital markets activity is beginning to thaw unevenly, with improving loan demand, disciplined underwriting and selective M&A—particularly bolt‑on transactions—while broader sponsor activity remains cautious.

"Pacific markets reflect the national picture in many ways, but with sharper contrasts," said Scott Anderson, Chief U.S. Economist, BMO. "AI‑related investment and innovation remain strong, but labor markets and affordability constraints continue to limit broad‑based growth. In this environment, productivity gains, liquidity and disciplined capital allocation will be critical differentiators for businesses across the region.

Pacific outlook:

Northern California
Northern California enters 2026 in a gradually stabilizing but highly uneven environment. AI‑related investment remains the region's dominant growth engine, with capital spending heavily concentrated in hyperscale data centers and infrastructure. However, job growth remains limited, reflecting a "low‑hire, low‑fire" dynamic across much of the Bay Area. Office markets remain sharply bifurcated, housing affordability continues to constrain mobility, and credit conditions remain selective—reinforcing the importance of liquidity and disciplined execution.

Southern California
Southern California is seeing improving visibility but a still‑mixed operating environment. Stabilizing interest rates are supporting planning confidence, while growth remains segmented across sectors and geographies. Aerospace and defense, life sciences, and advanced manufacturing continue to outperform, while consumer‑exposed industries and parts of the media ecosystem face ongoing pressure. Elevated housing costs and uneven labor conditions remain key constraints, leading businesses to prioritize high‑return initiatives, scenario planning and practical AI adoption over broad expansion.

Pacific Northwest
The Pacific Northwest enters 2026 in a period of adjustment as technology hiring slows, population growth decelerates and trade uncertainty weighs on activity across Washington and Oregon. AI‑related infrastructure investment remains a bright spot, supporting engineering, construction and data‑center development, but broader employment growth has stalled. Businesses are responding by prioritizing productivity, automation and disciplined execution rather than expansion, relying on efficiency gains to sustain competitiveness in a more subdued growth environment.

About BMO Financial Group
BMO Financial Group is the eighth largest bank in North America by assets, with total assets of $1.5 trillion as of January 31, 2026. Serving clients for 200 years and counting, BMO is a diverse team of highly engaged employees providing a broad range of personal and commercial banking, wealth management, global markets and investment banking products and services to approximately 13 million clients across Canada, the United States, and in select markets globally. Driven by a single purpose, to Boldly Grow the Good in business and life, BMO is committed to driving positive change in the world, and making progress for a thriving economy, sustainable future, and stronger communities.  

SOURCE BMO Financial Group