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5 Economic Indicators That (Mostly) Point to a Brighter Year for Nonprofits

Posted: 4/5/2021

Click here to read on The Chronicle of Philanthropy.

By Dan Parks

Experts say five key indicators can help nonprofits forecast their fiscal health this year on both the revenue and spending side of the ledger. And those indicators generally point to an improved outlook after a very tough year for nonprofits.

Una Osili, associate dean for research and international programs at the Lilly Family School of Philanthropy at Indiana University, said much depends on how donors feel about their prospects going forward. For example, someone with a high-paying job may hold off on giving out of concern that a layoff could be just around the corner. "People give when they feel secure," says Osili.

One popular measure of how people feel about the economy is the University of Michigan's consumer sentiment index, which rose in March to its highest point in a year.

Alan Abramson, a professor of government and politics at George Mason University, who also writes about philanthropy, says no single economic indicator is the perfect fit for all charities. "Each nonprofit has its own revenue stream, and there are a lot of differences among them," he says.

Below are some of the economic indicators that Osili, Abramson, and other experts cited as the most important for nonprofits and fundraisers to watch as they calibrate their budgets in the months and years ahead.

Gross Domestic Product

+ 4.3 percent in the fourth quarter of 2020

This broad measure of economic output is considered by many economists to be the most important measurement of the health of the economy, and it's looking good. The annualized rate topped 4 percent at the end of last year — a strong rate of growth historically — and many economists expect it to easily eclipse that mark this year.

Osili said GDP is the most important indicator for nonprofits because it broadly reflects multiple facets of the economy. Factors affecting GDP include labor productivity, business output, and technological advances. The government's forecast for a strong GDP this year was a key factor in the Lilly School's recent projection of strong fundraising growth this year and next, Osili says.

Regional Economic Indicators

They may be more important than national measures.

For many small nonprofits, regional indicators may be more important than national measures like GDP, say Ann Kaplan senior director, VSE, at the Council for Advancement & Support of Education and other experts.

Osili notes that the South and Midwest, for example, have been more resistant to shutting down businesses amid the pandemic, so donors in those regions may feel more confident about the economy than donors in other parts of the country.

Patrick Rooney, an economist at the Lilly School cited resources at Ball State University and the Urban Institute as good places to look for more localized information about economic performance.

Stock Market

S&P 500 Index near an all-time high, at 3,971

The stock market has been relatively unscathed by the pandemic, other than a quick decline in March. That decline was followed by a rapid rebound that pushed stocks to new highs by last fall.

Abramson says the stock-market performance is particularly important in predicting giving by private foundations, individuals, and corporations. Private foundation giving is more insulated from year-to-year swings in the market because grant makers use a multi-year average of returns to set payout. However, he added, "it does get into the mindset of foundation folks if they see the market going down."

Government Spending

$1.9 trillion in the latest federal stimulus bill, including $350 billion to states and localities

The new stimulus law includes expanded eligibility for forgivable Paycheck Protection Program loans, a program that experts say has been crucial for keeping many nonprofits afloat.

The new law also sent $350 billion to states and localities, dollars that are crucial for nonprofits because government contracts are their biggest source of funds.

The additional funds provided to state and local governments in the new stimulus law could prevent a situation similar to the Great Recession of a decade ago when states just didn't pay their bills, and nonprofits were going months without getting paid, Abramson said.

Kate Barr, chief executive of the consulting firm Propel Nonprofits, called the federal relief funding up to this point "significant. It's really helping organizations stay in business."

And Congress may not be done yet. Some prominent Democratic lawmakers are pushing a bill that would provide an additional $50 billion to help nonprofits boost hiring and weather increased demand for services. That bill could become part of an infrastructure bill that President Biden is pursuing. Whether more spending gets approved will depend in part on how much lawmakers worry about incurring more federal deficits.

Unemployment

February's jobless rate: 6.2 percent

High demand for services is stretching the budgets of many nonprofits, with social-service organizations in particular struggling to keep up.

A key way to figure whether that high level of demand will continue is to look at unemployment figures.

The news on that front for nonprofits is positive as well. Last week the Labor Department reported that new claims for jobless benefits fell to their lowest level since the pandemic began.

The unemployment rate in February stood at 6.2 percent, well down from its pandemic-era peak of nearly 15 percent.

Grant makers look at these figures, too, to decide how high need is and whether they should give more to social-service groups to meet high demand.

"Foundations are thinking about how many people are looking for help, and that's certainly how the economic indicators come into play as well," Abramson said.

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