The recent instability among certain banks has increased the economic uncertainty that nonprofits have been facing since Covid-19 began to sweep the globe three years ago, reports to a March 20, 2023, Chronicle of Philanthropy article.

“Uncertainty is the enemy of investment in the capitalistic sector, but it’s also the enemy of investment in the philanthropic sector,” Patrick Rooney, professor of economics and philanthropic studies at the Lilly Family School of Philanthropy at Indiana University, said in the article.

Spooked by the banking industry’s headline-grabbing volatility, donors and grant makers might withhold their support, according to Rooney, even as many nonprofits grapple with spiking demand for their services and dwindling government aid.  Plus, he said, a resilient labor market and lingering inflation mean that wages remain high, and some nonprofits are struggling to keep up with rising costs.

The article also cited Paul Schervish, professor of sociology at the Boston College Center on Wealth and Philanthropy. He made the point that while consumer confidence cannot always predict consumers’ spending habits—or their penchant for making financial donations—growing uncertainty can make raising money difficult for fundraisers and grant makers alike.

“Uncertain times have been with us for a while, so it’s just harder to run a budget right now,” he says. “Philanthropy on the supply side, and fundraising on the demand side, have suffered from that uncertainty.”

Donor Predictors

By some benchmarks, the economy remains strong, which historically is good for a donor environment:

• Unemployment: The nation continues to experience historically low levels of unemployment. Although unemployment is gradually rising, many nonprofits are still struggling to attract and retain enough workers to function properly.

• Consumer Confidence: While consumer spending is relatively robust, Americans are sending mixed signals at the cash register. Consumer confidence inched higher by 3.2% in February 2023 from the previous month, as measured by the University of Michigan Index of Consumer Sentiment. It was the third consecutive month of growth, indicating higher levels of optimism in the economy. Still, confidence remains well under the historical average and has yet to recover to its 2021 level, when inflation began taking hold of the economy.

• Inflation: Inflation is continuing to show signs of easing, registering a 6.1% annual growth rate in February 2023, the smallest 12-month increase since September 2021. Still, prices remain well above normal, with rising housing costs accounting for the largest portion of the Consumer Price Index. 

• Stock Market: The S&P 500, a benchmark equities index, has swung up and down in recent days over fears that the banking crisis might spread into the wider economy and also over continued uncertainty about what the Federal Reserve will do next. The moody stock market may depress foundation grant making as one source of charitable giving. The logic: most foundations pay 5% of their asset base annually, and a lot of that asset base is tied up in stocks.

For more insights on nonprofit donor giving patterns see ECFA’s News Affecting Your Ministry and also the ECFA State of Giving report.