HARRISBURG (TNS) — Pa.’s economy is strong — but there are signs trouble could be ahead.

Economic output and job growth have slowed, while indicators of inflation are starting to rise in the first half of 2025. And the most likely explanation of this shift are a rise in tariffs, a decrease in the size of federal investments and increasing uncertainty among business and consumers, according to a new report by the Keystone Research Center.

The biggest hits to the economy are yet to come, including the cuts to food assistance and Medicaid spending, according to the center’s economists.

“We’re just at the very beginning of the impacts,” said Stephen Herzenberg, an economist with the research center.

The center produces an annual report looking at the state of the economy’s impact on workers. Last year’s report highlighted a rapid increase in unionization efforts and a steady increase in real wages, just as pandemic inflation was starting to get under control. But this year’s report contains hints that the economy may no longer favor workers.

One sign is an uptick in the unemployment rate of Black and Hispanic workers. The unemployment rates of Black and Hispanic workers had reached historic lows in the last few years but that trend appears to have reversed in 2024 during Biden’s final year in office.

“Usually what you see is when the overall economy does less well, then the vulnerable workers—rural workers and workers of color—do particularly poorly,” Herzenberg said.

Not everyone agrees the economy is headed south. David Osborne, the senior director of labor policy at the conservative-leaning Commonwealth Foundation, said the data isn’t clear yet.

“You see the numbers. And in the stock market, there’s been some volatility in the national economy,” he said. “I can’t tell yet at this point whether it’s trending up or trending down.”

The Keystone Research Center’s report said some policies could stop the downturn before it gains any more momentum. Their experts propose bringing back investments from the Inflation Reduction Act at the federal level, increasing the minimum wage at the state level and increasing support for unionization efforts at the local level.

“Whether the unfavorable shift in economic outcome deepens and becomes long term really depends on policies,” said Claire Kovach, a senior research analyst at the center.

Beef is a harbinger of what’s to come

The rising price of beef is an example of what the center says is a foreboding sign for the economy. The increases may be largely attributable to long-term issues, like increased droughts as a result of climate change. But the increases could also be an early sign of broader price increases, which some federal reserve economists have predicted will rise this year, especially as a result of tariffs.

“Working families care a lot about the price of staples,” Kovach said.

The researchers say Pa.’s employment data, while strong overall, is showing signs of weakening. For example, federal data shows 2,600 fewer federal workers in Pennsylvania in July compared to January this year. The Trump administration purged workers at several federal agencies and more than 150,000 workers took a buyout package this year.

Keystone researchers said one reason the economy is starting to show signs of weakness is the amount of investment in manufacturing has started to fall, after a dramatic rise during the Biden administration. They point to the reversal of the tax credits meant to incentivize the buildout of clean energy components, like batteries and solar panels.

Some of the biggest investments have been taking place in states like Georgia, South Carolina, Texas and Herzenberg said the federal data didn’t clearly indicate how much was scheduled to come to Pa.—making it hard to judge just how hard the commonwealth will be hit.

“There are a lot of red state representatives that are finding that they’re losing a lot of clean economy jobs, solar jobs, manufacturing jobs,” Herzenberg said.

Osborne, from the conservative-leaning foundation, thinks Pennsylvania would do better by decreasing the power of unions, so that Pennsylvania businesses could be more competitive with states where union organizing is more difficult. “We need to encourage businesses to locate here and to stay here instead of effectively forcing them out to other states,” Osborne said.

The Keystone researchers noted some of what they thought was a large rise in union organizing in 2023, appeared to wane in 2024. They attributed a lack of precision in the underlying survey data and statistics. Herzenberg pointed to the recent unionization of nearly 1,000 nurses at UPMC Magee Women’s Hospital in Pittsburgh as an examFple of what he thinks could be a surge in unionization efforts among service workers.

Osborne criticized the focus on service workers, like those at hospitals and universities, who he said already receive a living wage.

“These are not the kind of people who really need our help. These are people that benefit the unions,” he said. “And if the unions really cared, I think they would be focusing on their blue collar base and helping to improve working conditions for blue collar workers.”

The Keystone report includes data showing that low income workers in Pa. have been doing relatively better in recent years, compared to Pa.’s neighboring states. These workers still earn less than states where the minimum wage is higher—but the difference has fallen since its peak in 2020. Still, Herzenberg said the $1.12 per hour difference could be eliminated entirely by increasing Pa.’s minimum wage.

“That’s a considerable chunk of change. That’s like $2,300 per year,” he said.

A Commonwealth Foundation spokesperson noted less than 1% of Pa.’s workers earn the minimum wage. Osborne said a rise in the minimum wage could lead to a decrease in employment among Pa.’s most vulnerable, as businesses lay off workers to deal with rising labor costs.

“The treatment is worse than the disease,” he said. “I can’t believe that the Keystone Research center is still pushing this dribble about raising the minimum wage to $15.”

Osborne agreed tariff negotiations had injected some uncertainty into the economy and stock market.

“The only thing that’s sort of sent it into wild ups and downs is some of the tariff negotiations, but those aren’t done yet,” he said. “I mean, you’d hope that in the end the tariff negotiations result in a better outcome for the United States.”

An apprehensive economic outlook may not have massive implications for the budget negotiations underway in Harrisburg this summer, but Herzenberg said future negotiations could be imperiled by slower economic activity and large budget cuts to Medicaid that take effect in 2027.

“This current budget negotiation could end up looking like a cake walk,” Herzenberg said.

Earlier this month Herzenberg stepped down as the executive director of the Keystone Research Center, where he has worked for three decades. It’s been difficult to make progress over that time, he said, starting with the Reagan Administration. But he noted there was significant progress in wage growth for workers between 2013 and 2024.

“But the job’s not done,” he said. “As this report suggests we just put in place a president and Congress, where the rhetoric is populist but in terms of policies they are doubling down against any possible return to shared prosperity.”