American franchises are primed for growth next year, potentially ending a three-year streak of decline, according to a new report. But that growth is expected to be modest at best, leaving the sector well shy of pre-recession numbers due to persistent concerns surrounding credit access, health care costs and political gridlock in Washington.
“Franchising remains a bright light in a still very challenging economic recovery, outpacing projected growth of overall U.S. economic output,” IFA’s chief executive Steve Caldeira said in an interview. He noted that a majority of IFA members are S-corporations and LLCs, though the group also represents large corporations like McDonald’s and Dunkin’ Donuts.
Employment among franchise establishments should also accelerate next year, according to the report, which forecasts a 2.1 percent increase in employment in 2012 following a 1.9 percent increase over the past year. In fact, every segment of the franchise market is projected to bring on more workers, with business services franchises leading the way with a 3.6 percent increase in employment.
However, those numbers reflect only minimal growth compared to pre-recession employment levels, and the number of establishments still lags far behind the more than 770,000 up and running in 2007. Caldeira said a “whole host of issues” are handicapping projected growth next year, chief among them, limited credit access, costs associated with implementing new health care laws, and uncertainty surrounding tax reform.
“The least optimistic outlooks come from small franchise owners who are frustrated with the pace of the economic recovery and the lack of leadership in Washington, DC, which is making things worse not better,” Caldeira said. “They’re frustrated with the lack of support for pro-growth small business policies and the uncertainty created by negative rhetoric, partisan rancor and gridlock coming out of Washington, and I think that’s probably true through all industries right now.”