jwilzewske: Non-Profit Chamber Music Orgs and the Recession

U.S. Dept. of Commerce, Bureau of Economic Analysis, Balance of Trade, 1Q2004-2Q2008, seasonally adjusted (no CPI or other adj)

C ore June retail sales fell 0.7%, versus the Federal Government's report of 0.1% core retail sales gain. June data showed payrolls turned negative 2008-over-2007. Monthly payrolls dropped by 147,000 net of concurrent seasonal adjustment bias. Broadest Unemployment Rate jumped by 0.2%. Purchasing Managers Manufacturing Index (PMMI) ‘gain’ reported in June was due to [the government’s gratuitous—] re-weightings of the Index’s components [for the June reporting interval].”
— John Williams, Shadow Government Statistics newsletter, 15-JUL-2008.

The economy looks grim. And here in the U.S. you can see signs of radically altering consumer spending of disposable income. You see it in every restaurant—many of them with only one or two tables occupied during prime suppertime hours. You see it in mostly-empty retail-shopping car parks. You see it in drycleaners’ rotating racks, half-empty. You see it in dramatically lower attendance at sports and arts events. Will chamber music presenters see the effect this Fall, in terms of decreased subscription renewals? Almost certainly, yes.

Part of the frustration here in the U.S. is that the current government administration has for years persistently denied and obfuscated the economic facts, presumably for political reasons. Not conspiracy or malfeasance, exactly. Just a succession of convenient restatements of the rules for how the indicators are calculated and which data shall henceforth be excluded from which metrics.

Housing prices going up? Take them out of the calc and insert a bogus government-agency estimated 'equivalent rent'. Food and energy going through the roof? Exclude them and call the remainder 'core inflation', as if food and energy were not inconvenient core truths. Unemployment surging? Quit counting people who've given up looking for work. Averages higher than you'd prefer? Then use geometric means [e.g., Nth root of the product (a(1) * a(2) * ... * a(N))] instead, which will deemphasize high values and give extra weight to low ones. Presto! More favorable-looking numbers!

Federal Reserve Bank Chairman Ben Bernanke’s testimony before the U.S. Senate Banking Committee this week is perhaps the first forthright admission by a government official, that the economy in the U.S. is seriously troubled and will not likely recover anytime soon.

Non-profit executives have the skills and resilience to cope with economic down-turns, even prolonged ones. But their operational planning and financial planning depend on having factual information. Rosy, erroneous economic data from the federal government seriously undermine any manager’s effort to plan and manage an enterprise rationally.

One alternative is to utilize John Williams’ ShadowStats.com and other sources of independent data that are not susceptible to gratuitous political manipulation.

ShadowStats.com: CPI trend, 1980-2008, under evolving Federal policies for calculating CPI; vs. CPI trend for same period using same calc method as Federal govt used in 1992

Another alternative is to follow the international foreign-exchange and other indicators and commentary that reflect how other countries perceive the economic situation in the U.S., in a way that is entirely independent from U.S. government messaging (for example, the USD-EUR exchange rate, below).

Yet another alternative is to follow the Financial ‘prediction futures markets’, on InTrade or similar web-based services. Still another alternative is to utilize financial measures that are decoupled from the markets themselves, such as the Silicon Valley Venture Capital Index. The Silicon Valley Venture Capitalist Confidence Index (Bloomberg ticker symbol: USFSVVCI) is based on a quarterly survey of 27 San Francisco Bay Area venture capital firms. The Index measures and reports the opinions of professional venture capitalists in their estimation of the highgrowth venture entrepreneurial environment in the San Francisco Bay Area over the next 6 - 18 months. The Silicon Valley Venture Capitalist Confidence Index for the second quarter of 2008, based on a June 2008 survey measured 3.07 on a scale with 5 denoting high confidence and 1 low confidence. In just 3 quarters’ time, by the end of the quarter just completed (2Q2008), the USFSVVCI index has fallen 32% from its 2004-2007 average, to a third consecutive new low since the Index’s inception. (The 32% is referenced to bottom = 1, since there is no zero score possible.)

Univ San Francisco Silicon Valley Venture Cap Index trend

It’s a recession. We feel it. We see it all around us. We smell it. Don’t keep misleading us with conveniently-revised, ever-evolving economic indicators. Call the recession by its proper factual name, please—won’t you?—you in the media and government. And do something major about it, quickly!

I t’s a Recession when your neighbor loses his job; it’s a Depression when you lose yours.”
— President Harry Truman, 1948.

The alacritously-repeated claims in the media—to the effect that ‘These are un-charted [economic] waters. No one can predict what will happen. No one knows how these [economic] things work.’—are disempowering and inertia-enabling, and interfere with managers’ planning as well.

T his is the worst financial crisis since the Great Depression and the worst U.S. recession in decades.”
— Nouriel Roubini, 16-JUL-2008 on BloombergTV.

There are past deep recessions and inflationary periods about which we do know quite a lot, to which we can turn for clues and predictions and ideas as to what we should do and what results we should expect and how soon. Ruth Towse’s excellent book, for example, shows how the non-profit economy contracted from 1991 to 1994 (see esp. pp. 144ff) before recovering. Similar economic and inflationary trends between 1978 and 1983 are also germane. For the authorities and media pundits to bloviate on about “No one could’ve predicted … No one can say …” disserves the entire society. Non-profit organizations are probably among those most vulnerable during such periods.

S ocial capital [represented by the arts] ... is largely forgotten by governments pressurized to treat the arts in the short to medium term as a set of sectors within a creative or cultural industry, for economic gain mostly.”
— Lorelei Loveridge, 2008.

Have a look at the book co-edited by Steinberg and Powell. Steinberg continues his extensions of Weisbrod’s work, identifying and characterizing three types of economic failures in the non-profit sector:

Market failure;
Voluntary failure; and
Government failure.

The choices (for possible actions that chamber music orgs’ executive teams and Boards of Directors can take) are substantially different for addressing each of these three failure types. Therefore, it’s wise to have a clear notion of what’s happening and what failures are in-play as you plan and execute your operating plan in these tough times.

I n uncertain economic times—especially when the airwaves and the front pages are abuzz with talk of recession—non-profit executives may overreact. Under pressure from their boards of directors, they all too frequently take ‘cost-cutting’ too far. The greatest victims are new-donor acquisition, which is often sharply cut back or even eliminated temporarily, and donor cultivation programs such as donor acknowledgments communications.”
— Mal Warwick & Dan Doyle, NonProfitTimes, MAR-2008.

Adverse economic conditions affect fundraising results in multiple ways and do not hit all nonprofits equally. For example, the rise and fall of the stock market strongly correlates with the ability and willingness of foundations and big individual donors to give to the arts. Foundation grants are especially prone to dramatic curtailment, since most foundation assets tend to be in equities, and U.S. nonprofit regulations and foundation boards tend to limit their annual giving to five percent of assets at the most. This effect tends also to kick in later than the economic downturn itself, as grants are typically made on the basis of the previous year’s asset valuations.

Corporate giving to nonprofits shrinks as corporate profits decline. This is a big deal as the spend on energy and materials has skyrocketed in the months past. But the impact of a poor economy will affect different companies in very different ways. Many companies manage to preserve their profits for many quarters through cost-cutting, even in a prolonged ‘down’ economy. And there are some businesses in “countercyclical” industries—ones that serve basic human needs such as groceries and gasoline and heating that don’t go away in a recession—which are profiting from a downturn despite the adverse impact on everybody else. Corporate donors (or big individual donors) associated with such businesses might increase giving. So you might look to cultivate those donors this year. Probably you won’t be looking to see big giving to non-profits by, say, banks and other hard-hit businesses this year.

In summary, if you’re a chamber music presenter or other non-profit arts manager, factually fore-warned is fore-armed. Avail yourself of the trustworthy, untampered-with data that are out there. Become a more discriminating data-consumer, as Prof. Menzie Chinn says. And start looking to potential donors whose businesses are maybe more resilient than your traditional donors, or to some whose businesses may somehow be backhandedly benefiting from the economic pox that’s upon us.

E xcept in cases of severe economic downturns, the effects tend to be much less pronounced on membership renewal rates, average gifts in direct mail and telefundraising ... and other barometers of giving by people who aren’t necessarily wealthy. However, as a recession drags on, donor acquisition efforts may become even more challenging than they already are. Even those people whose day-to-day finances aren’t curtailed by a recession tend to become more cautious, and response rates in acquisition may shrink because donors hesitate to expand their giving choices. Shrinking personal income and a bear market on Wall Street take their toll.”
— Mal Warwick & Dan Doyle, NonProfitTimes, MAR-2008.

jwilzewske

Thursday, July 17, 2008

Non-Profit Chamber Music Orgs and the Recession

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