Nonprofits face an uncertain economic outlook early in the year as the strong labor market and cooling inflation rates have failed to overcome fears of a recession and calm a volatile stock market.
Here’s a closer look at some of the economic data experts say nonprofit officials should be watching.
Unemployment
In recent months, nonprofits have hired enough employees to recover jobs they cut during the Covid crisis, according to a new report by the George Mason University Nonprofit Employment Data Project.
In December 2022, unemployment nationally stood at 3.5 percent, matching its lowest rate since 1969. The strong labor market has remained resilient despite a series of recent interest rate hikes by the Federal Reserve, which are intended to quell inflation but could dampen economic growth.
As a result, employees can be picky about their prospective employers, and many nonprofits have offered new policies and benefits to attract talent in recent months, says Trayce Weeks, managing director of strategy and advisory at Nonprofit HR, which provides human-resources advising and services to nonprofits.
“People have more options,” says Weeks. “But they are choosing to stay with organizations that are focusing on them as people and not just them as products.”
In addition to offering flexible work schedules and other benefits to attract new talent, nonprofits have also been stepping up efforts to keep employees on the job, says Weeks. Many organizations have long conducted exit interviews with departing employees. Now many also offer “stay” interviews, which aim to understand how to hold on to employees.
“Instead of only having a turnover strategy, they’re having a retention strategy,” she says.
One sign that the challenges of hiring may soon abate: Some older employees have opted to delay retirement amid continued economic uncertainty, says Weeks.
She says that many nonprofit workers fear the economy’s instability may jeopardize their retirement nest eggs so much that they can’t afford to leave. “We just don’t know what’s happening or what’s coming,” says Weeks. “With the economic downturns that we have been expecting over the last couple of years, people are really staying in their positions, so they can see what happens, she says.”
Still, the pressures are so strong that some nonprofits are seeking loans to help them provide higher wages to workers coping with rising prices, says Paul Turner, director of loan origination at the Nonprofit Finance Fund, which provides loans to nonprofits.
Nonprofits, he says, “are trying to keep up with pay as much as they can in an effort to retain employees, but they’re struggling to offer competitive compensation.”
Stock Market
The stock market has been volatile in recent months as a result of the Federal Reserve’s efforts to rein in inflation by raising the cost of borrowing. One benchmark equities index, the S&P 500, ended the month down 5.9 percent in December 2022.
The ups and downs of the stock market and other investments have destabilized foundation endowments. A new report issued last week found that assets had plummeted nearly 20 percent last year, after growing by about 3 percent on average in recent years. The steep drop, combined with sluggish growth in previous years, means grant makers will have to decide whether they want to dig into their endowments to keep giving as strong as it has been during the Covid crisis and its aftershocks.
Inflation
Inflation has begun to ease slightly, registering at 6.5 percent in December 2022, down from 7.1 percent the month before. But higher borrowing costs and lingering supply-chain issues have made real-estate projects more costly for nonprofits.
Organizations seeking loans — say, to purchase real estate for a new headquarters or financing to rehabilitate an old food bank — have been hit especially hard by the rising cost of borrowing, says Turner of the Nonprofit Finance Fund.
“There are tremendous costs when an organization has these aspirations to acquire a property for the first time, or even then when it comes to renovations,” says Turner.
“Material costs have gone up and contractors’ time is more expensive — they’ve had to adjust their budgets and planning for that,” says Turner.
He noted that the impact of the tight borrowing market tends to fall hardest on organizations led by people of color.
More than 80 percent those nonprofits cited long-term financial sustainability as the top need of their organization, compared with 69 percent of white-led nonprofits, according to the Nonprofit Finance Fund’s most recent State of the Nonprofit Sector survey. The survey also showed that nonprofits led by people of color were less likely to receive unrestricted funds, corporate donations, investment income, and revenue from sales than white-led nonprofits.
Consumer Sentiment
One bright spot for the U.S. economy as the year begins has been rising consumer confidence after a year marked by growing uncertainty over inflation and the economy. Consumer confidence rose 5.1 percent in December from the previous month, as measured by the University of Michigan Index of Consumer Sentiment.
The growth in consumer confidence may also help explain nonprofits’ success in attracting donations despite economic uncertainty during the year-end giving season.
