While political candidates debate the health of the nation’s economy, the franchise sector this week received some of the most encouraging news in almost five years that indicates signs of recovery.
The Franchise Business Index, developed by IHS Global Insight on behalf of the International Franchise Association Education Foundation, increased by 2.2 percent from September 2011 to September 2012. It was the best year-over-year gain since the recession began in December 2007. Moreover, the index showed a 0.5 percent increase from August to September, the second consecutive monthly increase after declines in June and July.
The Franchise Business Index is based on indicators of growth in the U.S. industries where franchising is most prevalent, as well as measures of the general economic environment. It was developed to provide timely tracking of the growing role of franchise businesses in the country’s economy.
The IFA attributed the increases to a drop in the unemployment rate coupled with a slight improvement in credit conditions for small businesses. According to the president of the association, franchising is performing better than other business sectors in the creation of new businesses and jobs.
“Franchising continues to demonstrate its resiliency as a business model, consistently outperforming other sectors in new business formation and hiring,” said IFA President and 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 entitlement programs.”
Still the economic forecast is better than it has been in years. The number of franchise establishments in the United States will increase by 1.5 percent this year, or nearly 11,000 new businesses, according to IFA’s 2012 Third Quarter Franchise Business Economic Outlook. That’s lower than the 1.9 predicted earlier this year, but it means that 2012 will be the first year since 2008 that the industry will add new units. Last year, 3,984 franchise establishments went out of business; and from 2008 through 2011, more than 23,000 closed.
Experts expect the franchise sector to create 167,000 jobs in 2012, an increase of 2.1 percent. That compares to 150,000 new positions created in 2011. Overall, more than 8 million jobs in the United States are attributed to direct employment in franchising.