RubinBrown What Not-For-Profit Organizations Should Expect in 2015

ECONOMIC UPDATE

From an economic perspective, 2014 had many highlights – low inflation and interest rates, low gas prices and gradually increasing home prices. With consumer spending making up approximately 70% of the economy, low inflation and gas prices allowed consumers to spend less at the pump and more elsewhere, thus stimulating economic growth. Strong equity market conditions were present in 2014 and are expected to continue through 2015. Investment markets are expected to generate returns on equity securities approximating 5-8%, strong performance but below historical averages. However, as was the case in 2014, in the context of an improving economy, capital market volatility is expected to occur and to be short-term in nature as evidenced by recent market activity. Organizations should not be distracted by this short-term volatility and should focus on “staying the course.” Returns on fixed income securities are expected to only approximate 1-3%. Currently, there is speculation that interest rates may rise in late 2015 but this rise is expected to be very slow, unless inflation becomes a concern, economic recovery really accelerates, or the global economic recovery catches up with the U.S. dollar (which is currently strong). The global demand for U.S. Treasuries should also keep long-term rates down. Inflation is not expected to be a concern having only increased 0.8% in 2014 after a 1.5% increase in 2013, according to the Bureau of Labor Statistics. This is the second- smallest December-December increase in 50 years. Only modest increases in inflation are expected in future years – the long-term average expected for 2015 to 2019 is only 2% per the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters. More positive news is expected in 2015 with regard to consumer confidence, which rebounded in May 2015 per the Conference Board. Consumer confidence is expected to continue to rise to 95% in 2015. Optimistic people tend to make more purchases. Increased spending stimulates the economy and often translates into increased consumption and discretionary income. This is good news for many not- for-profit organizations that are impacted by constituents' discretionary incomes. Moderate unemployment and low GDP growth are expected to remain consistent in 2015. During 2014, unemployment decreased from 6.6% in January to 5.6% in December. Unemployment rates are expected to improve gradually, dropping to 5.4% in 2015 and 5.1% in 2016 per the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters. As a result, labor shortages are anticipated to worsen and more emphasis may be placed on wage issues and employment. Per this same survey, real GDP growth increased 2.4% in 2014 and is projected to gain moderate momentum over the next four years – growing 3.2% in 2015, 2.9% in 2016, and 2.7% in 2017. While this growth rate is less than desired, it exceeds expected global economic growth compared to Japan and Europe per projections from the Bank of Canada. Global GDP growth has been lagging, with forecasted growth rates between only 1.0% and 1.5% expected in upcoming years. For the remainder of 2015, not-for-profit organizations should be optimistic that continued strong financial market conditions and increased consumer confidence and discretionary income will translate into positive revenue increases. However, labor demands and potentially increasing interest rates may cause moderate volatility in an organization’s expenses.

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