A year ago we were all filled with a lot of uncertainty. The stock market was reaching its lows, having dropped from an all time high in October 2007 where it exceeded 14,000. Though the stock market, and the general economy, had declined from October 2007 to October 2008, it was only at that later date that things started falling faster and faster.

The recent decline seems to have bottomed out just over a year ago when the Dow Jones Industrial Average closed just under 6,450 on March 6th. 

While the economy has improved, it is still hard to tell how far and how fast, or if there might be another big dip in the road ahead. Adding to that uncertainty is the difficulty we have quantifying just where we’ve been.

Last September I had the chance to listen to several economists at the Philanthropy Northwest Annual Conference. I asked them a question that I had heard from many nonprofit groups as well as wondering about myself: How much has the economy shrunk?

During 2009 I gave several presentations and talked to many nonprofit leaders about the topic of “The New Normal.” A question that topic raises is this: Where are we now compared to where we were?

Unfortunately, the economists didn’t really have an answer. Their response reminded me of a quote attributed to President Harry Truman. “Give me a one handed economist!” he said, “Because all my economists answer ‘on one hand this, on the other hand that.’”

While I haven’t found a one-handed economist, I have found an answer that provides some context for the changes we’ve been through. Thanks to Chris Thompson at The Chronicle of Philanthropy there is a handy chart that provides some insight to the changes in the economy as they relate to fundraising. Called the Quarterly Fund Raising Index it looks at key factors that may influence giving:

• Gross Domestic Product- this is a measure of the overall size and health of the economy.
• Personal income-important because individual giving accounts for more than 80% of all philanthropic giving
• S&P 500 stock index- this provides a basic measure of the health of the stock market. Also, according to the Center on Philanthropy at Indiana University, giving declines $1.85 billion every time this index declines 100 points.
• National unemployment rate- this is another impact on individual giving.

The chart uses the 3rd Quarter of 2008 as the baseline. That data was for June 1 to September 30 of 2008, just before the big drop in October.

The chart available now compares the last five quarters (4th Quarter 2008 and all four quarters of 2009) to that baseline. The chart hit a low in the second quarter of 2009, which reflects the impact of the stock market decline that bottomed out in March. That low mark was 28.9 against the baseline. To put it another way, the economy by these measures was less than one-third of the economy before the crash.

By the end of 2009 the economy had risen 10% by these measures, to 31.1 against the baseline.

This graph prompts me to ask several questions as I go about my work. I wonder what the nonprofit sector will look like in another year. I wonder how we best go about facing these events rather than just letting them happen.

One lesson seems clear: we won’t be going from 31.1 on this scale back to 100 overnight. So nonprofits struggling with a decline in contributions or fee income need to look at how they can cope with that reduction over the next few years.

That is one reason that grantmakers are less interested in pleas to help an organizations meet their budgets as the fiscal year comes to an end and more interested in helping organizations engage in the long-term changes that must occur.

At the same time, there is a limit on how many new organizations foundations and other funders can help. Many foundations are giving much less in 2010 as the full impact of the 2008-09 stock market decline is felt in portfolios. While the market is coming back, it will take a few years and a consistently rising market to get back to the same grant levels as we in 2004-2007.