Signs of an economic crisis, including rising inflation, have clouded the outlook for nonprofits at a time when many organizations are entering their most important fundraising season.
Although the country’s GDP grew in the third quarter, consumer confidence, which can indicate how Americans feel about their spending power, remains low. Rising interest rates have fueled fears that the country could be in trouble. Nonprofit leaders, experts say, should be wary of the prospect of a recession.
“The end of the year is a critical fundraising time for almost everyone,” says Shannon McCracken, CEO of the Nonprofit Alliance, a national membership advocacy group. “Some of the unknowns in the last two months have put a pause on spending and caused everyone to go back and re-budget on the differences.”
Here’s a closer look at some of the financial experts who say nonprofit executives should be watching. Also check out our previous updates.
After two consecutive quarters of GDP growth in the first half of this year, the economy grew again in the third quarter, growing at 2.6 percent annually. Global trade lagged behind GDP growth, while consumer spending fell and the housing market weakened due to rising interest rates.
The Federal Reserve has been raising interest rates to curb inflation, but experts warn that the measures could plunge the country into a recession, which would be especially difficult for nonprofits already struggling to deal with long-standing problems like the housing shortage.
“We’re entering a very difficult economic environment with very little housing,” says Mike Kingsella, CEO of Up for Growth, a housing nonprofit. The results, he says, could affect a number of non-profits.
“The depth of the housing shortage in all parts of America makes it difficult for agencies to provide services to people who are homeless or at risk of homelessness,” says Kingsella. “Non-profit developers are already having to seek and raise a variety of funds to make these projects work.”
Fears of a recession have hit other organizations as well. After years of unexpectedly strong support from foundations and the government, arts groups are struggling, says Eddie Torres, CEO of Grantmakers in the Arts. Much of the funding that tech nonprofits received during the pandemic came from government grants and foundation grants, which have dried up, and investors have been cautious due to financial fears.
“Foundations tend to be more stressed during recessions,” he says. “After being the most generous in history, the recession we were at was unprecedented.”
Unemployment rose slightly to 3.7 percent in October, still at a record low. A strong job market means nonprofits are still struggling to fill open positions, especially in development, McCracken says.
The only research released by a History this month found out how difficult things are: 89 percent of fundraisers said their organizations don’t have enough people to raise money, and 4 out of 5 say it’s taking longer than it did two years ago to fill the gap.
The challenges of filling development positions in nonprofit organizations can be tempting when presenting year-end results. A strong labor market, experts say, has implications that extend beyond the fourth quarter.
Difficulty filling middle-level development positions now could mean fewer candidates are available for senior jobs in the future, McCracken says.
“If this is really about our ability to fulfill these responsibilities, where will we be five to 10 years from now in terms of how we can hold these responsibilities?” says McCracken.
Consumer confidence remained at a record low in October, rising 2 percent from the previous month, as measured by the University of Michigan Index of Consumer Sentiment. Consumer frustration is largely driven by rising prices and looming economic uncertainty, experts say, and could have troubling signs of supply.
“The effects of inflation and cost increases are reflected in the daily activities of donors,” says McCracken, who noted that inflation has also affected nonprofits, as they are forced to contend with higher costs.
He said: “There is reason to be afraid. “We’re all reading the news and filling up our gas tanks.”
While donors have responded to the Covid pandemic – a time of economic crisis – by increasing their gifts, McCracken says that many non-profits have struggled to explain the importance of today’s fundraising needs to donors who have given more in the past two years and think that the organizations are here. in a fixed position.
“It’s like they’re the ones that did well in 2020, when their fundraising programs did well,” McCracken says.
For arts organizations that rely heavily on individual giving, raising funds in the face of economic uncertainty has become increasingly difficult.
“These are volatile times,” says Torres, who notes that not all types of arts organizations have been equally affected in recent months. Despite the economic uncertainty, BIPOC-led micro-organizations will still be successful in raising funds due to the increased number of races in 2020, he says. Large corporations with multiple locations or high salaries have struggled to raise funds in recent months.
“The small, innovative organizations led by BIPOC are the most vulnerable right now, because they’ve made a living by doing more with less,” says Torres.
The value of the S&P500
While the stock market rallied in October, market volatility in the past few months has caused some high-income earners to hold off on large gifts, McCracken says.
The S&P 500 rose 8 percent in October after falling 9.3 percent the previous month. The Federal Reserve’s interest rate hike has raised concerns for investors trying to forecast the economy’s performance in the coming year.
“The stock market in particular is making investors cautious and cautious, which is a concern as corporations are counting down to the end of the calendar year,” says McCracken.