I am not an economist.
But I am a pastor who must plan a church budget for 2025. What are the odds of a recession?
J.P. Morgan Research increased the recession probability by year-end 2024 from 25% to 35%. Other economists put the likelihood of a recession by year-end 2025 around 45%.
Here is the bottom line: There is a 50/50 chance you need to budget for a recession in 2025.
I know, that’s not helpful. Basically, the economists are saying anything can happen.
Since 1950, the United States has experienced a recession approximately every 6.5 years on average. These recessions have varied in duration, lasting anywhere from two to 18 months, with the average recession lasting around ten months.
What Happens to Charitable Giving During a Recession?
Historically, the drops are not drastic.
One study found that charitable giving is more sensitive to economic upturns than economic downturns, meaning economic booms were more likely to increase donations than recessions were likely to reduce them.
But is this trend changing? Maybe. Charitable giving declined by 11% ($59B) in 2022. It was the biggest annual decline on record, surpassing the drop of the Great Recession from 2008 and 2009. Then charitable giving increased by 11% in 2023 ($58B) but is still just short of the all-time high of $558B in 2021.
Are we at an inflection point with a potential downward trend in our future? Or will the upward trend of charitable giving continue? It’s anyone’s guess.
It’s important to note the difference between charitable giving and donations to churches. For decades, the church has lost ground with overall charitable giving.
- Giving to churches has dropped even though giving to non-profits is up.
- In the early 1980s, churches received over half of all charitable giving.
- Today, churches receive less than a third of all charitable giving.
Charitable giving is on the rise in the United States, but churches are receiving a smaller and smaller portion. People who give see the church as merely one option among many places to give.
The Real Culprit: Inflation!
Charities are encountering increasing costs, and as the economy deteriorates, many will experience a surge in demand for their services. Although recessions don’t always result in a drop in donations, the actual value of funds available to charities is diminishing due to increased expenses caused by inflation.
- Personnel costs are up.
- Operating expenses are up.
- Deferred maintenance is getting more expensive.
- Mission partners need more funds.
While revenue is up for some churches, it’s often not keeping pace with increasing expenses. For example, income is up in many homes, but not at the same pace as the increasing costs to feed and care for children—a common theme found across the United States with many families.
How You Can Prepare for a Potential Recession
What should you do? Even if we don’t experience a technical recession, inflationary pressures remain. Your church could feel the pinch of the devaluation of the dollar.
- Be willing to stretch your personnel costs slightly beyond the 45% to 55% range. The longtime rule of thumb is 50% of a church’s budget should be dedicated to personnel. This rule still holds true generally, but you might need to stretch an extra percentage or two in order to accommodate the cost-of-living increases among church staff.
- Limit any new debt or personnel costs and wait until rates drop more. For churches already feeling the pressure of inflation, now is not the time to roll the dice with additional debt or place stress on the personnel budget with an extra hire.
- Do not count on significant increases in giving. Budget your revenue from 2024. Unless your church shows signs of substantial growth, I would be more conservative with budget increases.
- For cash flow purposes, ensure you understand the timing of your expenses. At my church, our giving dips slightly in the summer while expenses go up with camps, VBS, and neighborhood ministry. We know in advance that a slight cushion is needed by spring to cash flow in the summer.
- Challenge your people more, not less, during a recession. Remember, silence about giving will lead to apathy about giving. You don’t get unless you ask. Spiritual warfare starts in the bank account. Congregants often stop giving first before other areas of faithfulness begin to slip.
- Downsize or eliminate luxuries that deplete cash flow. You may need to cut that weeklong staff retreat or the expensive, big-name conference speaker.
- Build a reserve line item into your budget. Many churches do not have a contingency fund for unforeseen expenses. A church should have about three months of expenses set aside for emergencies. Start building this fund through your operating budget. In essence, you pay yourself with this tactic. As funds come into the operating budget, a portion is set aside for the contingency fund.
You can plan wisely without sacrificing the heart of your ministry. Your church can weather a potential recession while fulfilling its mission and serving your community faithfully.
