New index of franchises sees a small improvement

Up 0.3% in February, 1.4% from month in ‘11

The nation’s franchises are seeing a modest uptick in business as they seek to recover ground from the recent recession, according to a new index of the sector that debuted Thursday.

The new Franchise Business Index, compiled by the International Franchise Association (IFA), pulls employment figures from the U.S. Bureau of Labor Statistics, personal consumption expenditures from the Bureau of Economic Analysis, and small-businesses optimism and credit conditions from the National Federation of Independent Business.

The index showed a 0.3 percent uptick in February and 1.4 percent increase compared with February 2011. Based on historical data, the latest overall index reading of 107.7 would be the highest since mid-2008.

IFA President and CEO Steve Caldeira said that the main purpose of the index is to provide franchise businesses with a month-to month base of data so they can make wiser investments.

The recent recession has proved that “the state of the industry is constantly changing,” he said. “… Our members need real-time data in order to make sound financial decisions, and policymakers need to know how their decisions impact an important part of the economy.”

The recent index increases were mainly because of growth in the labor market and small-business optimism components, according to IFA officials. In addition, consumer demand improved after being flat at the end of last year.

“For the first time, the franchising sector had economic information based on solid government data,” said Mr. Caldeira.

According to the IFA, franchise-operated businesses account for more than 3 percent of the United States’ gross domestic product. The franchise trade group comprises some 300 lines of business accounting for nearly 18 million jobs.

Before the new index, the U.S. Census Bureau was the only organization to track franchise businesses, although it only showed data about franchise businesses across the country and not how they were doing, as the new index tries to do.

“Through the development of the economic-impact reports, the IFA began working with the Census Bureau to include franchising questions in its economic census,” said Mr. Caldeira.

Supplementing the new charter for franchises, the IFA also released an update to its 2012 economic outlook prepared by IHS Global Insight that showed little change from the previous December 2011 forecast of “weak growth.”

The updated IHS forecast projects that the number of franchise establishments in the United States will rise by 1.6 percent in 2012, down slightly from the original forecast of 1.9 percent. Employment and economic output growth forecasts are unchanged at 2.1 percent and 5 percent respectively.

Association officials said Thursday they plan quarterly updates of the franchise sector outlook, instead of just an annual survey.

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