The Economy and Impacts on Giving
As the country and the world begin to transition from Covid-19 as a pandemic to endemic and things start to return to their new normal – including the economy, this serves as a good time to review some of the economic indices for their possible impacts on giving this year.
First the good news. Until Russia invaded Ukraine, major stock indices continued to increase with slight bobbles as world and domestic events unfold. From mid-July 2021 through February 2022, the Dow Jones Industrial Average has pretty much stayed between 34,750 and 36,000 after starting 2021 just over 30,000. In fact, in early November 2021, the Dow closed at an all-time record high of 36,157.58, the seventh record high in 2 weeks. Even in the midst of the Ukrainian crisis, thus far the Dow has only fallen below 34,000 for a few days in late February. While we cannot accurately predict how long this crisis and its impacts on global markets will continue, overall stock prices have increased which creates wealth for individuals, companies, and foundations who have invested in the market. Wealthy donors have gotten wealthier, and many corporate and foundation assets have grown, both good news for raising funds for a capital campaign.
Second, the economy continues to grow. According to the Bureau of Economic Analysis, the Gross Domestic Product increased by 5.7% during 2021, the most since 1984. Long-term analyses project continued economic growth for the next three years at the 2-3% annualized levels. As the economy grows, so does giving. Historically, philanthropy has totaled about 2% of the gross domestic product. Conversations with business owners who rely on consumer and business spending revealed that locally spending continues, including on very large purchases.
Third, unemployment continues to fall. The Bureau of Labor Statistics reported that December 2021's unemployment rate dropped to 3.9%, a new pandemic low, increasing slightly to 4.0% in January 2022. Locally, Quad Cities unemployment fell to 3.7% in December 2021, from 6.1% in December 2020 with 6,200 more Quad Citizens working today compared to a year ago. The February jobs report exceeded expectations meaning the job market grew faster than anticipated. Low unemployment gives people more disposable income to donate and makes them feel more financially secure.
Fourth, taxes remain relatively low for wealthy individuals and companies as Congress has thus far failed to pass a new tax plan to reverse the Trump-era tax cuts. That makes now a good time to ask people and companies in these tax brackets to make a financial contribution to charity while they feel that they have more money to invest in this project.
Finally, giving indices suggest positive growth in 2022. According to Blackbaud, giving increased by 9% in 2021, the third consecutive year of fundraising growth. Based on the economic forecasts outlined previously, giving remains on track to continue to increase during 2022.
In addition to this good economic news, two other factors may negatively impact fundraising from an economic perspective, not the least of which come from the war in Ukraine and its economic impacts.
First, inflation persist which could drive consumers to save instead of spending on goods and services including making gifts to the campaign. The Commerce Department reported that inflation jumped 6.1%
in January 2022 compared with a year ago, the largest year-over-year rise since 1982. Excluding volatile food and energy prices, core inflation increased 5.2% in January from a year earlier. Prolonged labor market shortages and supply chain disruptions fuel the fears that recent price increases will not return to their pre-pandemic levels as soon as many have predicted.
Second, the war in Ukraine will have economic impacts around the globe. Sharp price increases – especially for food and oil – will likely worsen as will stock market volatility. These factors could add to global inflation and slow projected economic growth. The length of the war and its ultimate outcome will likely determine the short-term and long-term economic impact that it has locally and around the world. Companies with locations in Russia or Ukraine and who rely on Russian and Ukrainian consumers will feel a tighter economic pinch and may decide to invest their giving in humanitarian aid for Ukraine. Obviously, that will not impact all of your donors, but bears monitoring, especially for those multinational companies upon which you rely for assistance.
Overall, the economy looks good for 2022, especially among the wealthy who likely make up the majority of your major donors. (If not, you should evaluate your giving strategy!) Middle income donors may feel more of a pinch which might impact annual giving campaigns. Regardless, the stock market, inflation, and the war in Ukraine bear watching as the year goes on.