Inflation is cooling, unemployment remains low, and the stock market is making gains, but something more elemental — the weather forecast — took a toll on nonprofit finances in July. Across the country, heat waves, wildfires, and flash flooding have made charities’ jobs tougher.
That was true in Arizona and throughout the Southern United States, as a searing heat wave, with daily highs above 110 degrees, scorched much of the region for the past three months, driving down productivity and plunging many of the region’s charities into crisis mode.
Summers in the region are always hot and often “stretch nonprofits to their limits,” says Kristen Wilson, CEO of the Alliance of Arizona Nonprofits, but never before like this.
“There are so many needs that arise from this crazy heat, but now you’ve got all these other pressures tacked on top of it,” says Wilson, noting the impact of lingering inflation, surging demand, and downward trends in giving and volunteering. “They may not be able to attract as many resources or volunteers — who wants to be out in 120 degrees doing anything?”
Here’s a closer look at some of the economic data experts say nonprofit officials should be watching.
Gross Domestic Product
The country’s gross domestic product, which measures the value of all goods and services produced, rose at a 2.4 percent annual rate in the second quarter, up from 1.1 percent in the first three months of the year and a sign that the economy is growing steadily.
That was good news for nonprofits in Vermont, where catastrophic flooding destroyed thousands of homes, businesses, and nonprofits, which strained charities during one of the worst housing crises in the country.
The gains in economic output have given Jesse Bridges, chief executive of United Way of Northwest Vermont, reason to be optimistic.
“Tax revenues are looking good,” says Bridges, a rare positive sign for the nonprofit leader after months of economic uncertainty. Vermont has the second most nonprofits per capita in the country, and many are funded through government contracts that depend on flush tax coffers.
Still, even more government funding — and broader economic growth — might not make up for increased demand and damages in the wake of the flooding.
Funding that might have gone toward big building projects or advocacy campaigns will likely be used for emergency repairs, says Bridges.
Inflation
Inflation fell to its lowest annual rate in over two years in June, with prices increasing 3 percent over the previous year. That rate of growth is lower than the 4 percent logged in May. While the rate remains above the Federal Reserve’s target of 2 percent, inflation has cooled significantly since reaching heights of 9 percent last summer.
However, lower inflation doesn’t mean that prices are falling — it means that prices are rising less quickly. Many nonprofits are still struggling to pay for rent, wages, and food that cost far more than they did two or three years ago.
Nonprofits struggle to capture enough revenue even when inflation is more tame, says Wilson. He expects it will take some time before nonprofits feel the impact of easing inflation, especially as demand for services continues to rise.
“Nonprofits always have a longer tail of recovery,” he says.
Unemployment
In Vermont, where one in seven people works for a nonprofit, prolonged work-force shortages have made responding to crises like flash flooding even more challenging. Staggering housing costs in the state have made it difficult for nonprofit workers to afford to live in the state and difficult to attract workers from out of state, says Bridges, creating a dire worker shortage for some nonprofits.
“You’ve got the increased demand due to things like natural disaster, and then on top of that, you’ve got a shortage,” he says. “Those two things have created a real pinch point.”
Nationally, the labor market remains extremely strong, with an unemployment rate of 3.5 percent in July, close to its lowest level in 50 years. That’s good news for workers, who have made substantial gains in wages over the past year, but difficult for nonprofit employers, for whom work-force shortages have become a persistent challenge.
During the first quarter of 2023, which ended in March, the number of nonprofit workers earning less than $40,000 a year decreased by nearly 50 percent, while the proportion of workers earning over $150,000 increased by over 7 percent, reflecting growing salaries, according to Independent Sector’s Health of the U.S. Nonprofit Sector report.
While fierce competition for employees has led to some positive changes for nonprofit workers, it’s become “harder and harder” for many nonprofits to keep up with the higher wages and benefits often offered by for-profit employers, says Akilah Watkins, chief executive of Independent Sector.
Consumer Confidence
Consumer confidence rose 11.2 percent in July from the previous month to its highest reading since October 2021, as measured by the University of Michigan Index of Consumer Sentiment. That indicates that Americans have become more optimistic about their finances
That’s welcome news for nonprofits, who’ve endured record declines in charitable giving rates over the past year, especially by everyday donors.
“When Americans feel more deeply rooted in their own economic well-being, they’re more willing to give,” says Watkins, who blames rising prices and economic uncertainty for fewer donations last year. “As the economy becomes more unsure and rocky, Americans internalize those feelings and they’re less likely to give.”
Stock Market
Markets tumbled last week following the downgrade of the country’s credit rating from the highest AAA to AA+ by the rating agency Fitch, which cited the ballooning U.S. debt and weakening governance for its decision.
However, for the past several months, the stock market has largely rallied around signs that inflation is improving and excitement over new technologies like A.I. One benchmark equities index, the S&P 500, ended the month up 3.1 percent in July. Another equities index heavily weighted with tech stocks, the Nasdaq Composite, closed June up 31.7 percent over the start of 2023, its best first half since 1983.
The gains also reflect investors’ hope that cooling inflation rates mean that the Fed will likely soon end its campaign to raise interest rates. Although the central bank increased rates in late August to their highest point in 22 years, the anticipated move didn’t seem to spook investors.
