Franchise businesses will continue to grow at a slightly faster rate than other businesses in terms of job creation, new business formation, economic output and GDP contribution, according to IFA’s first quarter update to The Economic Outlook for Franchise Businesses report prepared by IHS Global Insight for the IFA Educational Foundation. The forecast is virtually unchanged from the IFA’s initial 2013 forecast released in December.
“The report is good news and shows franchising remains an incredibly strong and resilient business model that generates jobs and economic growth for the American economy,” said IFA President & CEO Steve Caldeira. “While the report is good news, it is certainly not great news. We could be growing at rates two to three times faster if policymakers adopted a pro-growth agenda that dealt with the uncertainty in long-term business planning facing the business community, particularly among small business owners and individual investors who continue to be threatened with the prospect of higher taxes, the onslaught of costs associated with the health care law, high commodity and energy prices, and most recently, the threat of a national minimum wage increase.”
According to the forecast:
The number of franchise establishments in the United States will increase by 1.3 percent in 2013, just short of the 1.4 percent initially forecast, from 747,359 to 757,438, (an increase of 10,079).
The number of jobs in franchise establishments will increase 1.9 percent, down from the 2.0 percent initially forecast (following a gain of 2.1 percent in 2012) from 8.101 million to 8.257 million (an increase of 156,000).
The output of franchise establishments in nominal dollars in 2013 will increase 4.2 percent, down from the 4.3 percent initially forecast (following a 4.9 percent increase in 2012) from $769 billion to $802 billion (an increase of $33 billion).
The gross domestic product (GDP) of the franchise sector is projected to increase 4.0 percent in 2013, slightly down from the 4.1 percent initially forecast (following a 4.6 percent increase in 2012) from $454 billion to $472 billion (an increase of $18 billion). This is approximately 3.4 percent of U.S. GDP in nominal dollars.
“All basic indicators of the health of the franchise sector will show growth rates near their 2012 pace, said James Gillula, Managing Director, Consulting for IHS Global Insight. “Yet the franchise sector will continue to outperform within many of the industries where franchises are concentrated.”
The analysis is based on a grouping of franchise businesses in 10 broad business lines (see chart below). The growth outlook differs among the groups, with output growth in 2013 ranging from a low of 1.6 percent in Automotive to 6.4 percent in Real Estate. Other highlights of the industry forecast are:
Business Services and Commercial & Residential Services will rank as the top two sectors in both franchise employment growth and growth of the number of establishments in 2013.
Real Estate will rank first in output growth and grow slightly faster than the franchise sector averages in establishments and employment.
Quick Service Restaurants – the largest franchise business line – will rank second in the growth of output and will see growth rates of employment and new businesses that are slightly higher than the franchise sector average.
February Franchise Business Index Reflects Continued Growth
The Franchise Business Index (FBI), an index of the economic health of the franchising industry, increased by 0.3 percent in February as nearly all components of the index showed improvement, the International Franchise Association announced today. The index rose to 109.0 (Jan 2000=100). Compared with February 2012, the index was up 1.7 percent.
The February gain in the index was led by improvements in small business optimism and a fall in the unemployment rate. The January value of the index was revised downward and now also shows a gain of 0.3 percent, as revised data on employment and consumer spending for the month showed smaller gains.
Designed to provide more-timely tracking of the growing role of franchise businesses in the U.S. economy, the Franchise Business Index was developed by IHS Global Insight on behalf of the IFA Educational Foundation. The FBI combines indicators of growth in the industries where franchising is most prevalent and measures of the general economic environment for franchising. This month’s release of the index reflects an update of the historical series to incorporate data revisions in all index components and to replace the component based on personal consumption expenditures with more timely data on monthly retail sales.
About the IFA Franchise Business Index
The Franchise Business Index is a measure of the economic environment for franchise business activity constructed with timely economic indicators that provide a current reading of the industry’s health. It combines indicators of the growth or decline of industries where franchise activity has historically been concentrated with measures of the demand for franchise business services and the general business environment.
The components of the IFA Franchise Business Index for the U.S. include:
- Employment in Franchise-intensive Industries* (BLS)
- Number of Self Employed* (BLS)
- Unemployment Rate* (BLS)
- Consumer Demand in Franchise-Intensive Services* (Census Bureau)
- Small Business Optimism Index* (NFIB)
- Small Business Credit Conditions Index* (NFIB)
- Research for the IFA Franchise Business Index and the quarterly forecast reports is underwritten by a grant from Jani-King International to the IFA Educational Foundation.
*For more information about the components and the methodology, click here:
International Franchise Association: http://www.franchise.org/
For information about IHS Global Insight: http://www.ihsglobalinsight.com/