Key takeaways
- The US economy is still growing while hiring has stalled. Forecasters expect roughly 2% GDP growth for 2026 and put recession odds at 25% to 30%.
- Payrolls fell by 23,000 in July 2026 and unemployment edged down to 4.1%, but the drop came from people leaving the labor force rather than finding work. Labor force participation is at 61.4%, its lowest in more than five years.
- Layoffs are at a two-year low and announced hiring is up 25% over last year. Employers are being slow and selective, not cutting.
- Inflation is easing but still elevated at 3.4%, and the Federal Reserve may raise rates in September rather than cut them. Nonprofits with borrowing planned should budget for money getting more expensive.
- AI capital spending is the largest driver of economic growth and does not generate proportional hiring. It is the most cited reason for announced job cuts in 2026.
- For nonprofits, funding instability is a bigger near-term risk than the national job market. Forty percent of organizations reported staffing decreases or freeze risk tied to funding in the first half of 2026, while 38% still plan to add staff.
Nonprofits feel labor market pressure differently than private employers do. Compensation is rarely the lever you can pull, and what shapes your hiring is usually the funding picture rather than the national unemployment rate. That distinction matters right now, because the two are moving in different directions.
The economy is still growing. Hiring is not. U.S. Bank expects real GDP growth of about 2% for 2026 and puts the odds of a recession over the next twelve months at 25%. RSM forecasts 2.2% growth and a 30% recession probability. What has slowed is the job market, which leaves us with an economy that keeps expanding while hiring sits close to flat.
For a mission-driven organization, that is a more workable environment than a downturn, and in a few ways it works in your favor. But it comes with an inflation and interest rate picture that could complicate Q4 budgets, and it sits on top of a funding environment that remains the real pressure for most nonprofits.
Here’s where things stand and what you can do to account for it.
What the numbers actually say
A soft July, and softer revisions
The Bureau of Labor Statistics reported that payrolls fell by 23,000 in July while the unemployment rate edged down to 4.1%. Economists had expected a gain of around 83,000. The rate fell for a reason that is easy to misread: fewer people are looking for work. Labor force participation dropped to 61.4%, a level not seen in more than five years, and it is down 0.7 points since January.
The revisions tell you more than the headline does. BLS revised May down by 66,000 and June down by 37,000, leaving those two months a combined 103,000 lower than first reported. That pattern, where the first estimate looks passable and the second one does not, is worth watching over the next few months.
Layoffs are low, and hiring is picking up
The other half of the picture is better than the jobs report suggests. Challenger, Gray & Christmas counted 33,429 announced job cuts in July, down 46% from the same month last year and the lowest monthly total in two years. Announced hiring is up 25% over last year, with demand showing up in aerospace, energy, and manufacturing.
One caveat on the layoff comparison. Last year’s totals were inflated by federal workforce reductions, so part of the year-over-year improvement is an artifact of what 2025 looked like rather than a sign of strength now. Government-related cuts are down 93%.
Taken together: employers are not shedding staff, and they are not standing still either. They are being slow and selective. For anyone trying to fill a role, that means less competition for candidates than you have seen in years.
What is driving the uncertainty
The war with Iran and the Strait of Hormuz
The war that began in late February closed the Strait of Hormuz to commercial shipping. Roughly a quarter of the world’s seaborne oil trade moved through that waterway beforehand, and its disruption drove the energy price spike that ran through the first half of the year. Talks are ongoing. Iran and Oman outlined a proposal in late August for a temporary shipping corridor through the strait, with negotiations continuing toward a permanent one. An earlier ceasefire collapsed in July.
The practical takeaway for planning purposes is that this can move in either direction on short notice. Anything you build for Q4 should be able to absorb a change in energy costs without a mid-quarter rewrite.
AI investment
Capital spending on AI is enormous. Goldman Sachs estimates about $1 trillion globally in 2026, just under $600 billion of it in the US, with cumulative investment since 2022 reaching roughly $1.8 trillion by year end. Estimates of what that does to growth vary widely; Bridgewater puts the boost to US GDP at about 1.4 percentage points this year.
The employment side is the part that matters here. Data center construction does not generate ongoing jobs the way other capital investment does, and AI has been the single most cited reason for announced job cuts for five straight months, accounting for about 24% of all cuts this year. So the largest engine of growth in the economy is not an engine of hiring.
Inflation and interest rates
Inflation is easing but still elevated. The annual rate slowed for a second straight month to 3.4% in July, down from 3.5% in June, as the energy shock continued to work its way out. Gasoline fell 2.9% month over month.
Rates are the piece most likely to affect your Q4. The Fed held in July on a 9-3 vote, and several officials have signaled support for raising rates in September if prices do not cool further. J.P. Morgan now expects a quarter-point increase, a shift from its earlier call that rates would hold through the year. If you carry a line of credit or have borrowing planned, build for the possibility that money gets more expensive rather than less.
What this means for nonprofits
The macro picture is only half of what you are managing. The other half is funding, and that is where the sector is actually feeling it. Forty percent of organizations reported staffing decreases or freeze risk tied to funding instability in the first half of the year. Hiring difficulty eased over the same period, with 45% reporting greater difficulty finding qualified staff, down from prior years, and most roles filling in under 60 days. Some of that improvement is real. Some of it is just fewer organizations competing for the same people.
Most of the sector is holding steady rather than contracting. Thirty-eight percent of nonprofits plan to add staff this year and 47% expect to maintain current levels. That is the environment to plan against. Here are the priorities for the rest of the year, roughly in order of severity.
- Stress test the finance seat first: Funding instability is the risk that can end an organization, and it is the one moving fastest right now. The person managing multi-source grant compliance determines whether a hard year stays a hard year. Make sure that role is covered, current, and not a single point of failure.
- Head off burnout: This is the most significant staffing risk in a period like this. Replacing a long-tenured employee costs more than most efficiency measures save, and in a market where hiring is slow across the board, the replacement search takes longer than you would like. Losing people who hold institutional knowledge is the one loss you cannot buy back.
- Find efficiencies without quietly understaffing: Replacing old systems with better ones and retraining staff for new responsibilities are both real gains. Spreading the same work across fewer people is not, and it tends to show up later as turnover. There is a genuine difference between the two, and it is worth being honest with yourself about which one a given decision is.
- Sharpen reporting and forecasting: You need a clear view of where resources are going before you can find efficiencies, and you need a forecast that holds up if energy costs move or borrowing gets more expensive. Both of those are live possibilities for Q4.
- Hire deliberately, and take the opening while it exists: A slow labor market is the one part of this picture that works in your favor. Candidates are more available and less likely to be fielding three competing offers. Use the time that buys you to confirm that every hire is a long-term contributor rather than a fast fill. This is the moment to be selective, not the moment to be timid.
- Invest in culture and quality of life: Flexible schedules, hybrid arrangements, and opportunities to build new skills are low-cost and high-impact, and they are things you can offer when compensation is not where you would want it to be. They also carry forward. What you build now is what you can point to when the market tightens again and you are competing for candidates on something other than salary.
None of this changes the macro picture, and none of it needs to. The organizations that come through periods like this in good shape are usually the ones that were honest about their constraints early and planned inside them, rather than waiting to see whether the environment improved.
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
