Franchise Businesses Set The Pace

Franchising businesses continue to outpace the rest of the economy, according to the mid-year forecast update of The Franchise Business Economic Outlook: 2015. The report released last week by the International Franchise Association Educational Foundation and IHS Economics, finds franchising remains on track to outperform the U.S. economy for the fifth consecutive year.

While the forecast of U.S. GDP has been revised downward and now shows growth of only 3.4 percent increase in nominal dollars in 2015 for the overall economy, IHS expects the Gross Domestic Product of the franchise sector in nominal dollars to increase by 5.2 percent to $521 billion in 2015.

"Local franchise small businesses continue to grow at a faster pace, creating more jobs for Americans and producing higher sales growth than other businesses," said IFA President & CEO Steve Caldeira. "Franchising remains a growing and vital component of economic expansion across all levels of employment and small business ownership."

While the outlook is positive, IHS economist James Gillula cautioned that recent, proposed workforce policy actions by the National Labor Relations Board (NLRB) concerning the "joint employer" status of franchisors and franchisees has created a "cloud of uncertainty which could impede future growth."

"The NLRB is without question trying to implement a politically-motivated strategy supported by organized labor to break the franchise model by expanding the current definition of what constitutes a joint employer in the National Labor Relations Act. The current definition of joint employer has stood the test of time through both Democratic and Republican administrations for decades," said Caldeira.

"Local franchise business owners, not franchisors, are in charge of their own workplace practices, including setting wages, hours, and employee work schedules. The needless doubt created by the NLRB could slow franchising growth, job creation, and small business ownership opportunities, which in turn would hurt the rest of the still-struggling, fragile economic recovery," said Caldeira.

The outlook for individual franchise business lines has been revised slightly since the March forecast by IHS, but the top-line forecast for the franchise sector in 2015 has changed little. Key findings from the business outlook released today include:

• Franchise businesses will add 248,000 new direct jobs this year, a 2.9 percent increase to 8.8 million direct jobs, over last year. That is on top of the 239,000 franchise jobs that were added in 2014 and is faster than this year's projected 2.4 percent growth in overall private nonfarm employment.
• The number of franchise establishments will grow this year by 12,209, or 1.6 percent, to 781,991.
• Economic output from franchise businesses is estimated to increase by 5.4 percent over last year to $890 billion. Last year's gain was 5.0 percent.
• The forecast of U.S. GDP has been revised downward and now shows growth of only 3.4 percent increase in nominal dollars in 2015 for the overall economy, IHS expects the Gross Domestic Product of the franchise sector in nominal dollars to increase by 5.2 percent to $521 billion in 2015. The franchise sector will contribute about 3 percent of the U.S. GDP in 2015.
• The IFA Franchise Business Index - which is a mixture of employment, sales and credit conditions - also rose. In April, the index was up 2.6 percent compared to April 2014.
• The outlook for growth among the different types of franchises will differ, with retail businesses ranking first and quick service restaurants ranking second in terms of increased employment.