The year is half over and in many ways the American economy is looking good. In June 2023, the Consumer Price Index, a key inflation measure, fell to 3.0%—the lowest rate since 2021—and down more than six points from its 9.1% peak just 12 months ago.
Despite a minor dip in job growth in June, the labor market has remained stunningly strong, with month-by-month job growth consistently surpassing expectations. And while inflation continues to fall, wage growth among American workers has been on the incline, up 4.4% in June compared to the year prior.
Is the U.S. experiencing disinflation?
As of mid-summer 2023, some economists are declaring that the United States (U.S.) is experiencing an era of “immaculate disinflation,” a term coined by Nobel-Prize-winning economist Paul Krugman to describe the concept of inflation subsiding without causing an economic slowdown or a significant decrease in unemployment —aka—a recession. If the trend continues, it will be a best-case scenario—and an impressive feat by the Feds. Just six months ago in January, a World Economic Forum poll found that nearly two-thirds of economists anticipated a recession in 2023.
“The U.S. economy is genuinely displaying signs of resilience,” Gregory Daco, chief economist at tax and consulting firm EY told AP News. “This is leading many to rightly question whether the long-forecast recession is really inevitable or whether a soft-landing of the economy is possible.”
But while the Consumer Price Index and most recent jobs numbers offer a surprisingly bright glimmer of hope—it’s still too soon to say that completely we’re out of the dark. Yes, the odds of a so-called “soft landing” are improving, but many economists are still skeptical and warn that it’s unclear if inflation rates will continue to drop in the months to come. There’s also the fact that core inflation, which measures the changes in the price of goods and services, excluding food and energy, is still higher than the Feds want to see. In June, core inflation came in at 4.8%, down half a percentage point from May, but still not low enough for the Fed’s gig to be up.
“The problem for the disinflation people or believers is that the core readings continue to come in too high,” Jeffrey Cleveland, Director and Chief Economist at Payden & Rygel, a Los Angeles-based investment management firm told Marketwatch in July. “You need monthly core PCE readings to be 0.1% or 0.2% to see meaningful disinflation.”
Still, Krugman and other immaculate disinflation believers are optimistic about the possibility of the Federal Reserve pausing its tightening campaign in the near future as prices continue to normalize.
“So, we have a declining rate of cost increases and declining expectations of future inflation. An average would still show embedded inflation slightly above 3.0% – but it’s clearly down over the past year. Score one for immaculate disinflation hopes,” Krugman wrote on Twitter, suggesting that “maybe the Fed’s job is done.”
Suffice it to say, we may all still be in for more of a waiting game. In May, Fed Chair Jerome Powell announced that rate cuts may still be aways away. “It would not be appropriate to cut rates and we won’t cut rates [in the near term],” Powell said.
Thanks to the Federal Reserve’s aggressive interest-rate hikes (deemed the fastest rate-hiking cycle in history), the skyrocketing consumer prices that have burdened households since February 2020 are slowly returning to baseline. This is obviously a sign of success, but nothing happens in a vacuum: money-tightening campaigns almost always spur recessions. How long it takes for one to materialize, however, can take some time—typically between 18 to 24 months.
According to 70 years of data from Deutsche Bank, it takes, on average, around three years for the first rate hikes to trigger a recession.
Is the U.S. headed for a soft landing?
The Fed first kicked off its money-tightening campaign in March 2022 and made clear that it intends to hold rates high for “an extended period” — with no intentions to back off until after the terminal rate is reached. Considering the “long and variable” lag between monetary policy decisions and their effect on the rest of the economy, the full effects of the Fed’s rate increase remain to be seen in the second half of 2023 and early 2024.
“As we look into the next year, the next 18 months in terms of economic activity, I think it’s still a coin toss as to whether the economy will end up in a recession or not. There is hope of an immaculate soft landing where the Fed perhaps does not need to tighten monetary policy as much as it previously thought,” Daco told Yahoo! Finance.
How are nonprofits being affected?
Persistent levels of inflation and a slumping stock market have proved existential for charitable organizations. In 2022, charitable giving in the U.S. declined dramatically, falling 10.5% when adjusted for inflation, and marking only the fourth time in 40 years that donations did not increase. Contributions from foundations, corporations, and estates also fell after accounting for inflation, while overhead costs surged to historic levels.
“We saw inflation rise and, with that, we saw more working-class individuals on our lines,” said Shanice Brown, Development Director at NYC-based organization Community Help in Park Slope told Fortune. “Donations declined — and donated food as well — because as the price of things increases, people need more and so they donate less.”
While inflation is moving in the right direction, it’s yet to be seen when and if individual giving will perk back up. And as long as inflation remains elevated, charitable organizations will continue to feel the one-two punch of shrinking donations and reduced purchasing power.
Uncertainty has been a consistent theme for nonprofit leaders since 2020, and it appears it’s going to stay that way for some time. In a recent survey of over 225 nonprofit leaders, financial services firm UHY found that over 70% of respondents are concerned with maintaining program funding in the coming months. Meanwhile, over 65% of leaders in social services expect their demand for services to increase as a result of a likely recession.
They’re right to be concerned. According to a new study by Candid, corporate giving is expected to decline in 2023 for the first time in recent history, with the proportion of foundations anticipating declines in the amount they are giving (27%) exceeding those expecting increases in the amount they’re giving (23%). It’s “a stark contrast to sentiments from previous years’ surveys in which, consistently, far more foundations were optimistic about their giving,” the report’s authors said.
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About the Author
Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others.