Troubling economic signs, including high inflation, have clouded the outlook for nonprofits just at the moment when many organizations are entering their most important period for raising money.
While the country’s GDP grew in the third quarter, consumer confidence, which can signal how Americans will feel about the discretionary money they have available to give to charity, remains low. Rising interest rates have stoked fears that the country could slide into a recession. Nonprofit leaders, experts say, need to remain vigilant about the prospect of an economic slump.
“The year’s end is such a critical fundraising period for nearly everyone,” says Shannon McCracken, CEO of the Nonprofit Alliance, a membership-based national advocacy group. “Some of these unknowns over the past two months have really put a pause on spending and caused everyone to go back and re-budget for different scenarios.”
Here’s a closer look at some of the economic data experts say nonprofit officials should be watching. Also see our previous updates.
GDP
After two consecutive quarters of negative GDP in the first half of this year, the economy rebounded in the third quarter, growing at a 2.6 percent annual rate. International trade was behind the bulk of GDP growth, while consumer spending fell and the housing market slowed significantly as a result of rising interest rates.
The Federal Reserve has been notching up interest rates to quell inflation, but experts warn that the measures might plunge the country into recession, with particularly challenging effects for nonprofits already struggling to solve entrenched problems like the nation’s housing deficit.
“We’re entering a very challenging economic environment with far too few homes,” says Mike Kingsella, CEO of Up for Growth, a network of housing nonprofits. The result, he says, could affect a wide range of nonprofits.
“The depth of the deficit of homes across American communities puts even more pressure on organizations that are working to provide direct services to folks experiencing homelessness or housing instability,” says Kingsella. “Nonprofit developers already have to scramble and cobble together many different funding sources to make these projects work.”
Recession fears have been hitting other organizations, too. After several years of unexpectedly strong support from foundations and government, arts groups are suffering a slump, says Eddie Torres, CEO of Grantmakers in the Arts. Much of the funding that arts nonprofits received during the pandemic came from government support and foundation grants, which have dried up, and grant makers have been cautious in light of economic fears.
“Foundations tend to get very anxious in periods of impending recession,” he says. “After having been very generous during a historic time, to be starting down a recession when we were already at the precipice is really unprecedented.”
Unemployment Rate
Unemployment rose slightly to 3.7 percent in October, which still puts it in historically low territory. The strong labor market means that nonprofits are still struggling to fill open positions, especially in development, says McCracken.
An exclusive survey released by the Chronicle this month found just how serious the situation is: 89 percent of fundraisers said their organizations don’t have enough people to successfully raise money, and 4 in 5 say it takes longer than it did two years ago to fill vacant roles.
Difficulties filling development positions at nonprofits could be a drag on crucial late-year giving results. The tight labor market, experts say, has implications that go beyond the fourth quarter.
Trouble filling midcareer development positions now could mean fewer candidates are available for upper-level jobs in the future, McCracken says.
“If this is truly speaking to our ability to fill these roles, where will we be in five to 10 years in terms of that pipeline to more senior roles?” says McCracken.
Consumer Sentiment
Consumer confidence remained historically low in October, rising by 2 percent over the previous month, as measured by the University of Michigan Index of Consumer Sentiment. Consumers’ feeling of gloom has been driven largely by inflation and looming economic uncertainty, experts say, and may hold troubling signs for giving.
“The effects of inflation and rising costs are showing up in the behavior of everyday donors,” says McCracken, who noted that inflation has also hit nonprofits themselves, as they’ve been forced to contend with higher expenses.
“There’s a reason to panic,” she says. “We’re all reading the news and filling up our gas tanks.”
While donors responded to the Covid pandemic — a time of high economic anxiety — by increasing their gifts, McCracken says many nonprofits have struggled to convey the urgency of today’s fundraising needs to donors who gave more over the past two years and assume that organizations are now on steadier ground.
“It’s like they’re the victims of their own success in 2020, when their fundraising programs performed very well,” says McCracken.
For arts organizations that rely largely on individual giving, fundraising amid economic uncertainty has been especially challenging.
“It’s a very unsettled time,” says Torres, who noted that not all kinds of arts organizations have been affected in the same way in recent months. Despite economic uncertainty, smaller BIPOC-led arts organizations have still been finding some success at fundraising in light of widespread racial reckonings in 2020, he says. Larger organizations with multiple facilities or a higher payroll have had more difficulty fundraising enough in recent months.
“Those lean, BIPOC-led small organizations are actually the least risky right now, because they’ve made a life out of doing more with less,” says Torres.
S&P 500
While the stock market grew significantly in October, the market’s volatility over the past several months has still caused some high-earning donors to put a pause on larger gifts, says McCracken.
The S&P 500 grew by 8 percent in October after declining by 9.3 percent the month prior. The Federal Reserve’s rising interest rates have been a cause for concern for investors trying to predict the economy’s performance in the year ahead.
“The stock market in particular is causing large earners to be more cautious and conservative, which is worrisome as organizations are counting down the end of the calendar year,” says McCracken.
