The Franchise Business Index (FBI), an index of the economic health of the franchise sector, fell in December for a second straight month as the specter of tax hikes associated with the fiscal cliff weighed on franchise businesses, the International Franchise Association announced today. The index declined to 108.4 (Jan 2000=100). This was the second consecutive monthly decline. Compared with December 2011, the index was up 1.1 percent.
“Franchise businesses remain poised to accelerate growth plans,” said IFA President & CEO Steve Caldeira. “Unfortunately, Washington’s inability to address the fundamental challenges facing our economy, such as the complexity of the tax code and long-term spending on entitlements that contributes to unsustainable debt, is keeping existing and prospective investors on the sidelines, thereby preventing Main Street franchise owners from creating new jobs.”
Three of the six components of the index showed little or no change in December. The overall index value was pulled down by a decline in the indicator of self-employment in the economy, which out-weighed small gains in the small business optimism index and consumer spending in franchise-intensive categories of goods and services.
Designed to provide more-timely tracking of the growing role of franchise businesses in the U.S. economy, the Franchise Business Index was developed by IHS Global Insight on behalf of the IFA Educational Foundation. The FBI combines indicators of growth in the industries where franchising is most prevalent and measures of the general economic environment for franchising.
“The weakness in the franchise business index at the end of 2012 is not surprising given the uncertainty that was created by taking the fiscal cliff negotiations right up to the edge” said IHS Global Insight Senior Economist James Gillula. “The tax increases that were implemented and continuing uncertainty about raising the debt ceiling and reducing the federal deficit could continue to weigh on the health of the franchise sector during the first quarter.”
According to The Franchise Business Economic Outlook: 2013, a report prepared by IHS Global Insight and released Dec. 20, 2012, all 10 business-format franchise lines expect to add jobs in 2013, pushing total employment in franchising up 2.0 percent, from 8.1 million to 8.262 million (an increase of 162,000 new jobs) . Commercial & Residential Services (including construction) will be the growth leader in 2013, with an increase of 2.8 percent, up from 1.7 percent in 2012, from 346,822 to 356,533 (an increase of 9,711 new jobs). Three other sectors that are expected to show employment growth above the overall franchise average of 2.0 percent are Business Services, up 2.6 percent from 909,329 to 932,329 (23,643 new jobs) and the restaurant & food service sectors (both quick service and full service restaurants), up 2.2 percent from 4,050,922 to 4,140,042 (89,120 new jobs).