Inflation Is Easing, but Nonprofits Still Feel a Crunch
Inflation has shown signs of easing and the labor market has begun to cool slightly in recent months, offering a glimmer of hope for economic stability. However, nonprofits are still grappling with the persistent challenges of recruiting talent and coping with higher-than-normal prices.
Not to mention a wonky economy that has left even top-level economists puzzled, leaving nonprofits on edge over the possibility of a recession, if the country isn’t in one already.
More than one in three organizations has seen their funding decrease over the past year, according to a
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Nonprofits are still struggling to recruit workers and are being hit with higher-than-normal prices, despite signs that inflation is easing and the labor market is cooling down.
Mixed economic signals, which have puzzled economists, have left nonprofits on edge over the possibility of a recession.
For some charities, this economic uncertainty has resulted in fewer donations. More than one in three organizations have seen funding decrease over the past year, according to a new survey of over 225 nonprofit leaders by UHY, a financial services firm. Over 70 percent of leaders said that maintaining program funding was a top concern for their nonprofit in the coming months, and over 65 percent of leaders in social services expect demand to rise as a result of a likely recession.
At times when the future seems uncertain, “do not take your donors and your funding sources for granted,” says Brian Kearns, a partner at UHY who specializes in nonprofit finances. He recommends that nonprofits work to strengthen relationships with donors to make sure they’ll still be there if the economy sours.
The decline in philanthropic contributions that UHY reports is particularly troublesome because for many nonprofits, individual and foundation support has been a lifeline in the face of broader economic challenges and inconsistent federal aid.
“Philanthropy has been more innovative in recent years,” says Jacqueline Waggoner, president of solutions at Enterprise Community Partners, a national nonprofit housing developer, who called donors and foundations a “saving grace” for many housing providers because they have offered more flexible general operating support amid an uncertain economy.
“If they can keep up that same flexibility to help nonprofits and the people they’re serving, it could make a big difference,” she says.
Waggoner and other nonprofit leaders could be disappointed on that front, though. A new study by Candid found that more than a quarter of grant makers plan to give less this year than they did in 2022.
That finding came soon after the extent of nonprofit financial woes became clearer. “Giving USA,” the annual report estimating funding charities receive from foundations, individuals, and corporations, said that giving dropped by 10.5 percent last year, only the fourth time in decades that donations have declined.
Here’s a closer look at some of the economic data experts say nonprofit leaders should be watching.
Inflation slowed for the 11th straight month in May, registering a 4.1 percent annual growth rate, the lowest 12-month figure in over two years. While inflation remains well above historic levels, the rates were encouraging enough for the Federal Reserve to leave interest rates alone after 10 straight rate hikes.
Still, even as inflation eases, charities say they have yet to see prices and wages come down enough to make a difference to their budgets.
For the past several months, organizations have struggled with both rising prices and the rising interest rates built to curb them, says Adam Cole, a managing partner who specializes in nonprofits at the accounting firm BDO.
Nonprofits with government contracts, which may take up to 18 months to be paid, often rely on loans when their payments are delayed, says Cole. With higher interest rates increasing the cost of borrowing money and prices at historic highs, many organizations are now struggling to get by, he says.
“When money was cheap, there was an antidote” to delays in government payments, he says. “Now, they’re scrambling to get their bills paid.”
The national unemployment rate decreased slightly to 3.6 percent in June, down from May’s seven-month high of 3.7 percent and near its lowest point in half a century.
While the labor market remains exceptionally strong and there is still stiff competition for attracting talent, some nonprofits are beginning to see an easing in turnover and vacancies, says Cole.
For-profit companies that hired en masse when the economy was stronger are now beginning to lay off some workers, he says, presenting an opportunity for short-staffed nonprofits.
Nonprofits are “starting to have an easier time retaining and finding people to fill more of these open positions,” says Cole. Still, he says, not every nonprofit is trying to fill all its vacancies. Some nonprofits have done away with certain jobs altogether, as their functions were absorbed by other employees. He says he worries that in many cases those job eliminations are wrongheaded because they could exacerbate burnout — and turnover — for remaining staff.
In June, consumer confidence bounced back by 7.9 percent, reaching its highest level in four months, as measured by the University of Michigan Index of Consumer Sentiment, after tumbling sharply by 6.8 percent the month prior.
While the higher figure indicates that some Americans are beginning to feel more optimistic about the economy, many nonprofits are still struggling to attract donations amid record declines in giving.
The expiration of pandemic-era federal relief programs has also left nonprofit finances particularly vulnerable in recent months, making such decreases in giving even more challenging.
As nonprofits cope with changes to government programs and declines in giving, Alex Zhang, a partner at UHY who also specializes in nonprofits, recommends that they use such transitional periods as an opportunity to “diversify their funding sources.
“They cannot fully rely on a grant or a federal or state program,” he says, because “when the grant money dries up, they might have to let people go. They might have to cut services.”
The stock market ended strong in June, closing out the first half of the year at its highest level since April 2022. One benchmark equities index, the S&P 500, closed June up 6.5 percent from the month before.
Investors’ optimism came amid hopes that the Federal Reserve’s interest-rate campaign will soon come to a close without thrusting the economy into a recession, and a surge in investor interest in artificial intelligence.
While investors may be bullish, the future for nonprofits is far from certain, says Enterprise Community Partners’ Waggoner. For charities, she says, the possibility of a recession “impacts everything, from access to capital to operating costs.
“Everyone that builds housing and provides services is asking whether we’re in a recession or not,” she says. “It makes it very difficult to plan for the future.”