Franchise Business Index Reaches Highest Yearly Gain Since Recession

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Franchise Business Index: The franchise industry posted its highest year-over-year gain since the beginning of the recession in September, up 2.2 percent since Sept. 2011.  The increase of 0.5 percent was the second monthly increase in a row, after declining slightly in June and July.  A drop in the unemployment rate and an improvement in small business credit conditions contributed most to the September gain in the index.   The composite indicator of employment in franchise-intensive industries also continued to make a positive contribution to the index.

“The franchise model continues to demonstrate its resiliency as a business model, consistently outperforming other sectors in new business formation and hiring, particularly in the restaurant, retail and service sectors,” said IFA President & CEO Steve Caldeira.  “The  year-over-year gain is certainly welcome news.  Yet more consistent and accelerated long-term growth could be achieved in franchising if Congress enacts a short-term deal to avert the Fiscal Cliff and commits itself to tackling comprehensive tax reform and addressing America’s excessive spending on entitlements”

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.

Among other components of the index, consumer spending in franchise-intensive categories of goods and services increased for the third month in a row, although by small amounts each month.  The small business optimism index was down slightly in September after a strong gain in August.

“The franchise business sector continues to outperform the rest of the economy,” said IHS Global Insight Senior Economist James Gillula.   “However, the lingering uncertainty surrounding the direction of federal tax and spending policy poses a significant risk to sustaining this recovery.”

According to IFA’s 2012 Third Quarter Franchise Business Economic Outlook, prepared by IHS Global Insight:

  • The number of franchise establishments in the United States will increase by 1.5 % in 2012 (down from the initial forecast of 1.9 % growth), to 736,114, or nearly 11,000 (10,955) new businesses. This growth compares to a decline of 3,984 establishments in 2011 and is the first time since 2008 the industry will add new units.  Since 2008, the industry lost more than 23,000 establishments due to the recession and its lingering effects on consumer confidence, the housing market, credit access, and jobs.
  • Direct employment in franchise establishments will increase by 2.1% in 2012, from 7.9 million to 8.1 million, or 167,000 new jobs.  This growth compares to 150,000 new jobs in 2011.  The rate of job growth compares favorably to the overall private sector, with an estimate of only 1.8 % in 2012.

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* (BEA)
  • 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 generous grant from Jani-King International to the IFA Educational Foundation.

*For more information about the components and the methodology, click here:

About the International Franchise Association
The International Franchise Association is the world’s oldest and largest organization representing franchising worldwide.  Celebrating over 50 years of excellence, education and advocacy, IFA works through its government relations and public policy, media relations and educational programs to protect, enhance and promote franchising.  Through its media awareness campaign highlighting the theme, Franchising: Building Local Businesses, One Opportunity at a Time, IFA promotes the economic impact of the more than 825,000 franchise establishments, which support nearly 18 million jobs and $2.1 trillion of economic output for the U.S. economy.  IFA members include franchise companies in over 300 different business format categories, individual franchisees and companies that support the industry in marketing, law and business development.  

For More Information:

International Franchise Association:  www.franchise.org 

IHS Global Insight: www.ihsglobalinsight.com