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Midyear Economic Outlook Shows Improvement for the Franchise Sector

For immediate release
Alisa Harrison, 202-628-8000
Matthew Haller, 202-662-0770

WASHINGTON, May 30, 2012-A midyear revision of the 2012 economic outlook for the franchise sector shows slight improvement from the initial forecast released in December 2011, and a separate survey shows franchise business leader optimism is up over 2011, the International Franchise Association announced today.

"We are pleased to see some minimal economic growth in the revised outlook and improved sentiment among franchise business leaders," said IFA President & CEO Steve Caldeira. "The slow growth in the franchise industry, however, continues to be plagued by the sluggish economic recovery, a tight credit market, weak consumer spending and the continued policy uncertainty in Washington, particularly in the area of taxes. Coupled with the impending costs of the new health care law, these combined factors are restraining franchise business growth and job creation that the economy desperately needs."

The revised franchise industry forecast released today and prepared by IHS Global Insight indicates that the number of franchise establishments in the United States are projected to increase 1.7 percent (12,454 more units), down slightly from the December 2011 forecast of 1.9 percent. Employment is projected to increase to 2.2 percent (177,000 new jobs), up slightly from the original forecast of 2.1 percent. Economic output is projected to increase by 5.3 percent ($39 billion), up from 5.0 percent projected in December. The GDP of the franchise sector showed little change and is projected to increase to $461 billion in 2012, or 3.4 percent of the U.S. GDP in nominal dollars.

"Although employment growth has slowed and prospects have softened for some industries, there has been little to alter the basic pattern of IHS Global Insight's franchise industry forecast since our initial 2012 forecast," said James Gillula, IHS Global Insight managing director. "Since most franchise businesses are service and trade oriented entities, given our forecast of consumer spending growth that continues to be sub-par for an economic recovery, we expect only modest growth in franchise business formation and employment in 2012."

The revised report shows a few bright spots in some segments. Economic output is above overall industry average for Commercial/Residential Services, Personal Services, and Real Estate - 6.1 percent compared to the industry average of 5.3 percent.  This indicates some improvement in the housing market, in commercial real estate, and in home health care and other segments in Personal Services.  Employment growth is above average in the Business Services segment - 3.7 percent compared to the industry average of 2.2 percent, indicating that as demand increases for these services, businesses are rehiring and adding jobs.

Franchise business leader sentiment is more positive than the revised economic forecast showing signs of optimism for future growth. In a new franchise business leader survey conducted by the IFA, franchisors who report that business conditions have improved since 2011 increased to 56 percent over 39 percent in 2011, and 54 percent of franchisors feel that business conditions will improve over the next six to 12 months compared to 33 percent in 2011.

The number of franchisors who said they plan to increase hiring remains steady at 54 percent compared to 53 percent in 2011. Thirty-eight percent report some improvement in credit access over the past six months compared to 25 percent in 2011.

"Improving credit access for the franchise sector is critical for franchise growth and it is encouraging that some franchisors are seeing improvement," Caldeira said. "IFA has worked diligently over the past several years to bridge the information gap between the lending and franchise communities as well as government leaders. We are seeing progress, but have more to accomplish, including supporting pro-growth candidates in the November elections as an important step in stopping the unintended consequences of financial regulations that are stifling growth."

Click here for the Franchise Business Economic Outlook.

About the International Franchise Association
The International Franchise Association is the world's oldest and largest organization representing franchising worldwide. Celebrating over 50 years of excellence, education and advocacy, IFA works through its government relations and public policy, media relations and educational programs to protect, enhance and promote franchising. Through its media awareness campaign highlighting the theme, Franchising: Building Local Businesses, One Opportunity at a Time, IFA promotes the economic impact of the more than 825,000 franchise establishments, which support nearly 18 million jobs and $2.1 trillion of economic output for the U.S. economy. IFA members include franchise companies in over 300 different business format categories, individual franchisees and companies that support the industry in marketing, law and business development.