We’re in a Recession…or Not!

When teaching for The Fund Raising School we often hear the question: Are we headed toward an economic recession? The answer, of course, always is “yes.” In a market economy a recession can happen at least once per decade.

The more accurate question, then, is not “if” but “when” the next recession will occur. Recent economic data raise the possibility that “when” is “now” or “very soon,” although “not really” remains a viable option.

Regardless of the answer, the consequences for your fundraising remain the same. Let’s first take a look at recent economic data, as reported in the Wall Street Journal, before we examine implications for your fundraising planning.

The July labor force data caused a stir when the unemployment rate increased to 4.3 percent. While still low compared to average unemployment over the last 50 years, the rate now is the highest since 2021 when the economy was constrained by the coronavirus.

However, a key reason unemployment jumped was more people looking for work — an optimistic activity founded on a belief that jobs are available. Similarly, layoffs were not a big reason for the spike in unemployment, which was caused in-part by temporary, hurricane-related job loss in Texas.

That said, manufacturing and construction — two bedrocks of the economy — continue their summer slowdown. In fact, manufacturing officially is in contraction.

Conversely, the economy grew at a healthy 2.8 percent in the second quarter. Similarly, the S&P 500 increased 16% in the first half of the calendar year.

Finally, yellow caution light is flashing from a reliable indicator for predicting recessions. When the average unemployment rate over a three-month period is at least a half-of-a-percentage point higher than the same three-month period the previous year, a recession could be on the way. The May-July average unemployment has now surpassed that threshold when compared with the same three-month window in 2023.

Except the economist who created that indicator is not certain that her own measure is reliable this time around. The reason: the increase is from a historic low, and the economy simply might be rebalancing near full employment.

Each symptom of negative economic data is counter-balanced with a dose of positive news. Meanwhile, the landscape could change if interest rates are reduced in September, adding fuel to economic growth, although the effects of lowered rates take a few months to materialize (ah, there’s that good news, bad news construct once again!).

What does this mean for fundraising? First, donors donate based on their philanthropic values which do not change with the economy. However, since charitable giving is a discretionary choice, economic data inform the “wealth effect” of giving that can determine how much a person donates and when.

Therefore, the best time to fundraise when wondering about a recession is before the recession begins. Continually identifying new donors while stewarding a trusting relationship with current donors always is important, including in the context of the economy. Fundraising toward an annual operating surplus can help you save some money for the rainy days of a recession.

In addition, during times of crisis and economic downturn, donors tend to stay with nonprofits with which they have the strongest affiliation. Gifts might not be as large or as frequent, but gifts are more likely to be directed toward the nonprofits that have built trusting, long-term relationships.

Also, recessions do not necessarily affect all people the same way, hitting our low- and moderate-income neighbors the hardest. While all gifts from all donors are important, medium- and high-net worth donors hopefully can continue donating, even when the economy slows down.

Every day is a great day to tell your nonprofit’s story and share your fundraising case statement. Even if the economy is in a recession…or not.