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Modest recovery forecast for giving

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Michael Walden

Michael Walden

Todd Cohen

RESEARCH TRIANGLE PARK, N.C. – Charitable giving will grow slightly this year but charities still will need to work to raise more money.

That was the prediction of Michael Walden, an economist at N.C. State University who spoke to an audience of 175 people on Jan. 30 at the fourth-annual Philanthropy Forecast sponsored by the Triangle chapter of the Association of Fundraising Professionals.

Giving follows the economy, and the economy is starting to pick up after a deep plunge during the recession, Walden said.

But the recovery still trails the rebounds from other recent recessions because the dive was deeper, he said.

And in North Carolina, which continues to depend heavily on manufacturing jobs, the recovery trails that of the U.S. overall.

“Giving will improve,” Walden said, “but nudges will be needed.”

After falling in 2008 and the first half of 2009, including two quarters during which it fell roughly 6 percent each quarter, gross domestic product now is projected to grow at a “very modest” rate of 2 percent to 3 percent, Walden said.

In a robust economy, by comparison, the economy would be growing at a rate of 4 percent to 5 percent.

“We’re growing, but growing very slowly,” he said.

The reason is that while the massive job losses that occurred during the recession have stopped, employment has been posting only small gains.

The U.S. lost 8 million jobs during the recession but has regained only 2.5 million jobs, Walden said.

“A record number of people were unemployed for more than a year,” he said.

Job loss hurts the economy, he said, because consumer spending accounts for 70 percent of gross domestic product.

After a sharp drop during the recession, while they are spending more now, he said, consumers still are spending below their level before the recession.

And they are spending at 12 percent below the level at which they would have been had consumer spending continued to grow at pre-recession levels, Walden said.

The recovery in household wealth also has lagged behind the rebound from previous recessions, he said.

In fact, he said, the plunge in the economy arguably can best be characterized as a “loss-of-wealth recession.”

The decline in wealth has been a crucial factor both in the severity of the recession, and in the economy’s slow recovery, Walden said.

Wealth consists of financial wealth as well as wealth from real estate, primarily home ownership, he said.

While financial wealth always declines during a recession, he said, this recession was fundamentally different from previous recessions because of the collapse of the real-estate market following a 10-year boom.

That boom create a lot of jobs and a lot of wealth, and many people “accessed that wealth” through home-equity loans and other means, and then spent that money, helping to drive the economy, Walden said,

“Then it came to an end,” he said, with “appreciation rates” for housing prices falling into “negative territory,” where they remain.

The result was a plunge in household wealth.

“Forty percent of household wealth comes from real estate, and real estate has crashed,” Walden said. “The housing market has to get better before household wealth from real estate will recover.”

He voiced “cautious optimism” that the housing market was “moving toward equilibrium, where demand and supply match up again.”

Charitable fundraisers should be looking for any signs of recovery in the real-estate market as indicators that the economy is recovering, he said.

Walden said the recession hit North Carolina hard, and that the state’s job market has been slow to recover, with the employment base growing 0.7 percent in the state overall, compared to 1.9 percent in the U.S.

He also said the federal debt had reached its biggest share of gross domestic product since World War II, and warned that the U.S. faces long-term fiscal challenges because of the projected costs to government of an aging population.

Walden predicted 2012 would be a “growth year,” and would be “a little better” than 2011.

“I don’t see a return of the recession,” he said.

The housing market and household finance will be absolutely key to the recovery, he said, adding that the economy still will not be “normal.”

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