Following a period of steady decline in the middle of last year, the franchise industry has been growing consistently stronger over the last six months, according to a new economic index designed to track the ebb and flow of franchises’ role in the economy.
“The economy is picking up, and that’s good for everyone,” Eric Boll, who opened a Pillar to Post home inspection franchise in Herndon earlier this month, said in an interview. “We’re doing initial marketing approaches for the business now, and the response has been pretty favorable from potential customers, so I think we picked a good time to get started.”
On Thursday, the International Franchise Association published for the first time the results of its Franchise Business Index, which increased 0.3 percent last month to 107.7. The index has now risen for six consecutive months and currently stands well above its mark of 106.3 one year ago.
The IFA partnered with IHS Global Insight to build the index, which takes into account government and non-government data, including figures from the Bureau of Labor Statistics, the Bureau of Economic Analysis and the National Federation of Independent Business, to evaluate the changing economic environment for franchise businesses. The index weighs more heavily data concerning those industries in which the franchising model is employed more prevalently.
Economic conditions from January 2000 are used as a baseline for the index (FBI of 100).
“The franchise industry is a unique business sector and a vitally important contributor to the U.S. economy spanning some 300 lines of business, supporting nearly 18 million jobs, 825,000 establishments and providing for over $2.1 trillion in economic output,” IFA President Steve Caldeira said in a statement. “Measuring the strength of the franchise industry through the Franchise Business Index provides another indicator of the health of the economy as a whole.”
The index showed a sputtering industry in the middle of 2011 but began to turn higher in September. The most recent monthly increase stemmed largely from improvement in consumer demand, positive jobs numbers and an uptick in small business optimism. Credit conditions, on the other hand, showed no change in February.
Despite the slight increase in the overall measure, the IFA has also revised lower its expectations for franchising growth this year. The new forecast suggests the number of franchise establishments in the United States will increase by 1.6 percent in 2012, down from the original forecast of 1.9 percent.
“While the index shows we are moving in the right direction, more certainty in the tax and regulatory environments would help franchise businesses grow faster, creating more jobs and economic output at the local, state and national levels,” Caldeira said.
Here’s a closer look at the growth and decline of the franchise industry over the past decade: