Fiscal Cliff debate stifles franchise growth in December

Jan. 16, 2013

The Franchise Business fell in December for a second straight month as the possibility of tax hikes associated with the fiscal cliff weighed on franchise businesses. The International Franchise Association announced the index declined to 108.4, from 108.5 in November.

"Franchise businesses remain poised to accelerate growth plans," said Steve Caldeira, IFA president & CEO. "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."

Still, the index remains higher — by 1.1 percent — than it was for December 2011.

Also, 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.

According to "The Franchise Business Economic Outlook: 2013," all franchise categories expect to add jobs in 2013, pushing total franchise employment up 2 percent. The restaurant sector is expected to grow more than the overall franchise average, by 2.2 percent, and add about 90,000 new jobs.

Designed to provide tracking of the 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 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 James Gillula, IHS Global Insight senior economist. "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."

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Topics: Franchising & Growth

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