The Coronavirus crisis is affecting travel, commerce, and other variables worldwide. Nonprofit organizations are an important pillar of the global response to this pandemic, whether they are providing free meals to students home from school, services to senior citizens, or all-important medical supplies to those in need or on the front lines. As a result, nonprofit organizations are likely to feel the impact of this crisis through new and challenging fundraising obstacles, heightened portfolio volatility, and calls to action within the community.

Organizations should continue to engage their supporters in these difficult economic times and consider innovative practices to help overcome the social constraints presented by the pandemic. In our white paper Maintaining Donor Engagement during the COVID-19 Pandemic, we discuss alternative options available for nonprofit organizations raising funds to support their missions. 

Here we discuss the correlation between total charitable giving and the broader economy, with a focus on fundraising through adverse scenarios.

Setting the Stage

It is no surprise to us that the level of total charitable giving in a year is highly correlated to economic activity.

The charts below plot charitable giving against US GDP, a broad measure of the strength of the domestic economy, and the S&P 500® Price Return Index, a broad measure of the performance of the domestic stock market. 

US GDP versus Total Charitable Giving, as of 12/31/18 (Chart 1)

View accessible version of chart 1

S&P 500 Price Return Index versus Total Charitable Giving, as of 12/31/18 (Chart 2)

View accessible version of chart 2

Source: FactSet® Research Systems Inc., PNC, Giving USA 2019: The Annual Report on Philanthropy for the Year 2018. Researched and written by Indiana University Lilly Family School of Philanthropy. Sponsored by Giving USA Foundation, a public service initiative of The Giving Institute.

The growth of charitable giving is closely correlated to these two measures. That is, when these economic indicators go up, charitable giving tends to rise; conversely, when they go down, charitable giving growth tends to slow.

The table below shows that the correlation between the S&P 500 and GDP with charitable giving is highly positive in the same year (keeping in mind that correlation ranges from -1 to 1). Further, these two economic indicators also have a strong positive correlation to charitable giving in the following year. Indeed, when the economy is doing well and donors (of all types) have more money in their pockets, they are more likely to contribute to your organization. Conversely, when the economy is doing poorly or investment markets are experiencing a downturn, charitable giving still occurs, but charitable giving growth tends to decrease.

Table 1: Correlation between Economic Factors and Charitable Giving, 1990-2018

    Total Charitable Giving Giving by Individuals Giving by Corporations Giving by Foundations
S&P 500 Same Year 0.8354 0.8355 0.8150 0.8065
  Following Year 0.8429 0.8363 0.7907 0.8131
GDP Same Year 0.9957 0.9943 0.9823 0.9745
  Following Year 0.9909 0.9878 0.9730 0.9752

Source: FactSet Research Systems Inc., PNC, Giving USA 2019 Report

From 1990 to 2018, the annual growth rate of charitable giving was negative only three times (2008, 2009, and 2013).

That means charitable giving levels, even in bad years, tended to remain, at a minimum, stable year over year. In the next section, we focus specifically on how an economic downturn or adverse scenario could affect charitable giving. 

Fundraising Through Adverse Scenarios

Unfortunately, the stock market and the domestic economy do not always move in an upward trajectory. Shocks to the global economic system happen, whether by disruption in the supply chain, geopolitical issues, or global pandemic, shutting down a significant portion of economic activity. When these shocks appear, they tend to cause negative consequences for the stock market and overall economic activity. 

Looking back at two recent crises, the dot-com bubble burst (2000-02) and the Great Recession (2007-09), it is clear that shocks to the economic system have a profound effect on charitable giving.

dot-com Bubble Burst, 2000-02

Technology stocks rose precipitously in the 1990s with the growth of the internet and the potential for e-commerce. Due to poor expense management practices along with a host of other internal and external factors, these technology stocks fell just as quickly, from a peak in March 2000 to a trough in October 2002. During this time, the GDP growth rate slowed and the S&P 500 experienced negative returns from 2000 through 2002, as shown in the table below. Meanwhile, charitable giving, which averaged an annual growth rate of 8.15% from 1990 to 2000, dropped to an annual average growth rate of 1.12% from 2000 to 2004. (The average reflects a simple arithmetic average of charitable giving growth using data provided in the Giving USA 2019 Report.) Even though the market reached a relative bottom in late 2002, it wasn’t until 2004 that charitable giving began to experience higher growth rates year over year.

Data would suggest that fundraising growth could take two years or more to recover following a crisis.

Table 2: dot-com Bubble Burst and Charitable Giving Growth

  Charitable Giving Growth Rate Growth Rate of S&P 500 Price Return Index Growth Rate of US GDP
2000 13.03% -12.39% 2.98%
2001 1.06% -15.40% 0.38%
2002 0.27% -24.84% 1.73%
2003 2.03% 25.01% 2.45%
20004 9.61% 6.58% 3.81%

Source: FactSet Research Systems Inc., PNC, Giving USA 2019 Report

The Great Recession, 2007-09

Starting around 2005-06, widespread issues in the housing market and weakness in financial systems helped contribute to one of the greatest global recessions ever recorded. By 2007-08, these issues came to a head, with individuals and companies around the world, particularly in North America, South America, and Europe, falling into financial distress and/or bankruptcy. As a result, GDP growth turned negative and the stock markets crashed in 2008. The table below shows that the charitable giving growth rate turned negative across 2008 and 2009. Following a similar path to the dot-com bubble bursting, it was roughly two years later, in 2010, that charitable giving started to rebound.

Table 3: Great Recession and Charitable Giving Growth

  Charitable Giving Growth Rate Growth Rate of S&P 500 Price Return Index Growth Rate of US GDP
2007 5.06% 1.07% 1.71%
2008 -3.68% -39.55% -1.95%
2009 -8.29% 21.24% -1.45%
2010 4.87% 12.04% 2.08%
2011 3.59% -2.23% 0.50%
2012 11.43% 11.29% 2.10%

Source: FactSet® Research Systems Inc., PNC, Giving USA 2019 Report

Conclusion

Evidence from prior crises shows that fundraising through a crisis can be extremely difficult. To use an analogy, 2020 is likely to be another year where fundraisers have to pedal their bikes twice as hard to go the normal distance. With that said, people and companies are generous and want to help their neighbors and communities. Fundraisers just need to find alternative methods, especially around going virtual, to make it easy for donors to find their organization and support its important work.

As pillars of their communities, nonprofits may be called upon to help manage crises and subsequent recoveries. Putting plans in place now to continue securing the funding necessary to address these crises is critical. Please reach out to your PNC advisor for more information on best practices for fundraising to learn more.

About The Endowment & Foundation National Practice Group

The Endowment & Foundation National Practice Group builds on PNC Bank’s long-standing commitment to philanthropy and is focused on endowments, private and public foundations, and nonprofit organizations. Our group is structured to help these organizations address their distinct investment, distribution and capital preservation challenges.

For more information, please contact Henri Cancio-Fitzgerald at henri.fitzgerald@pnc.com.

 

TEXT VERSION OF CHARTS

Chart 1: US GDP versus Total Charitable Giving, as of 12/31/18 (view image of chart 1)

Year Total Charitable Giving (billions of dollars) US GDP Inflation Adjusted to 2018 Dollars
1990 98.48 11,460
1991 102.58 11,354
1992 111.29 11,669
1993 116.58 11,922
1994 120.05 12,345
1995 123.1 12,589
1996 138.89 12,925
1997 162.46 13,419
1998 176.56 13,961
1999 203.19 14,518
2000 229.66 14,950
2001 232.09 15,007
2002 232.72 15,267
2003 237.45 15,641
2004 260.26 16,237
2005 292.43 16,763
2006 296.09 17,208
2007 311.06 17,502
2008 299.61 17,160
2009 274.78 16,912
2010 288.16 17,264
2011 298.5 17,351
2012 332.61 17,715
2013 332.52 18,093
2014 357.6 18,585
2015 375.9 19,302
2016 396.52 19,572
2017 424.74 19,961
2018 427.71 20,494

 

Chart 2: S&P 500 Price Return Index versus Total Charitable Giving, as of 12/31/18 (view image of chart 2)

Year Total Charitable Giving (billions of dollars) S&P 500 Price Return Index Inflation Adjusted to 2018 Dollars
1978 38.57 367.59
1979 43.11 370.84
1980 48.63 415.88
1981 55.28 342.72
1982 59.11 376.31
1983 63.21 421.36
1984 68.58 407.26
1985 71.69 493.26
1986 83.25 544.84
1987 82.2 533.72
1988 88.04 573.24
1989 98.3 698.42
1990 98.48 619.65
1991 102.58 749.66
1992 111.29 757.48
1993 116.58 786.22
1994 120.05 754.55
1995 123.1 982.16
1996 138.89 1,150.84
1997 162.46 1,474.23
1998 176.56 1,822.67
1999 203.19 2,138.33
2000 229.66 1,873.30
2001 232.09 1,584.87
2002 232.72 1,191.16
2003 237.45 1,489.10
2004 260.26 1,587.07
2005 292.43 1,600.85
2006 296.09 1,772.55
2007 311.06 1,791.48
2008 299.61 1,082.94
2009 274.78 1,312.98
2010 288.16 1,471.07
2011 298.5 1,438.29
2012 332.61 1,600.68
2013 332.52 2,039.01
2014 357.6 2,235.02
2015 375.9 2,173.18
2016 396.52 2,328.80
2017 424.74 2,732.80
2018 427.71 2,506.84