IFA Predicts Franchising Will Again Outpace Economy in 2015
With another positive jobs report and dip in the U.S. unemployment rate, on top of oil prices that are still tumbling, the International Franchise Association (IFA) joined the chorus with some good news of its own: franchise businesses are projected to once again grow faster than the rest of the economy in 2015.
That positive nugget was part of The Franchise Business Economic Outlook: 2015, released this week by the IFA’s Educational Foundation and IHS Economics. Beyond the good news, the report contained a warning that federal regulations have the potential to disrupt this positive momentum.
“Franchising is an American success story. Independently-owned and operated local franchise businesses are growing faster, creating more jobs at a quicker pace and producing higher sales growth than other businesses,” said IFA President and CEO Steve Caldeira. “Franchising is a vital engine of economic expansion in the United States and 2015 looks to be another strong year for franchise businesses.”
Caldeira added a word of caution about the franchise outlook: federal intervention, specifically by the National Labor Relations Board, could deflate the growth projections significantly.
“Last month, the National Labor Relations Board moved to upend decades of law and practice by issuing a complaint against McDonald’s saying that it should be considered a ‘joint employer’ with its franchisees. The entire business model of franchising is endangered by this ill-conceived complaint,” he said. “Hundreds of thousands of franchisees must now operate not knowing whether they should believe what their contracts clearly state, that they are in charge of their own workplace practices, including setting wages and hours, or that the corporations from which they license their trademarks are also responsible for those things.”
According to the IFA Franchise Business Leader Survey, 97 percent of respondents believe that the joint-employer ruling, were it to take effect, would have a negative impact on their business, with 82 percent saying the impact would be “significant.”
The Franchise Business Leader Survey also revealed concern about the enactment of discriminatory increases in the minimum wage. More than 85 percent of franchisor and franchisee members believe that recent efforts by some cities and states to increase the minimum wage will negatively impact their business. In addition, more than two-thirds of franchisors and 85 percent of franchisees reported that their businesses have already been “negatively impacted” by the Affordable Care Act.
Key findings from the business outlook released include:
Franchise businesses will add 247,000 new direct jobs this year, a 2.9 percent increase to 8.8 million direct jobs over last year.
The number of franchise establishments will grow this year by 12,111, or 1.6 percent, to 781,794.
Economic output from franchise businesses is estimated to increase by 5.4 percent over last year to $889 billion.
The gross domestic product of the franchise sector is projected to rise by 5.1 percent this year, which is faster than the 4.9 percent GDP increase forecasted for the economy as a whole. 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, especially at the end of 2014. In November, the index was up 3.1 percent compared to November 2013, the biggest year-over-year gain since the start of the Great Recession in 2008.
The outlook for growth among the different types of franchises will differ, with quick service restaurants ranking first and retail businesses ranking second in terms of increased employment.
“With continued job gains, consumer spending will accelerate creating the conditions for another strong year of growth for franchise businesses,” said IHS Economics Senior Economist Jim Gillula.
Read the full IHS Economics report HERE.