WASHINGTON – Despite slower than expected growth in 2014 so far, the outlook for franchise growth remains strong with employment and output forecasts revised up slightly from January estimates, according to research released today by the International Franchise Association (IFA) Educational Foundation. Developed by IHS, “The Franchise Business Economic Outlook: 2014” second quarter update shows that the franchise industry will create more jobs and grow at a faster rate in 2014 than the national economy and contribute more to the U.S. GDP than the industry did in 2013.

"While we've seen some hiccups early this year, the fundamentals remain very strong for the franchise industry to lead in job creation and growth once again in 2014," said IFA President & CEO Steve Caldeira. "However, the franchise industry and small businesses in general would grow faster if Washington policymakers acted on pro-growth policies that improve the environment for businesses."

Caldeira said that the efforts passed by the House last week to fix the onerous definition of a full-time worker in the Affordable Care Act from 30 hours to the more traditional 40 hours is an example of how policymakers can improve the business environment to help franchise businesses grow and create more jobs at a faster rate.

The revised 2014 forecast shows that poor weather and the discontinuance of extended unemployment benefits have hampered growth. In fact, according to IHS, the Franchise Business Index (FBI) — a monthly index of franchise activity — remained essentially flat in the first three months of the year. However, income, consumer confidence, and spending are still expected to improve relative to 2013 and accelerate growth by mid-year.

Additional key findings from the business outlook released today include:

• Employment in franchise establishments is expected to increase 2.4% in 2014, translating to approximately 200,000 new jobs. This is a greater rate than was previously projected in January. Franchise employment growth is also expected to outpace total private sector growth of 2.0% in 2014.
• The growth in the number of franchise businesses in 2014 is expected to rise to 1.7% from 1.4% in 2013. This will match projected nation-wide business formation for 2014 and will result in 12,510 new establishments.
• The gross domestic product (GDP) of the franchise industry is expected to increase 4.5% in 2014, up from the 4.2% growth achieved in 2013. This will account for $21 billion and approximately 3.5% of all U.S. GDP in nominal dollars.

"The pace of economic growth has slowed in the first quarter due to temporary factors including poor weather and the need to draw down excess inventories. Recent readings of the Franchise Business Index suggest the franchise sector has likely been affected by this temporary loss of momentum," said IHS Senior Economist Jim Gillula. "But the fundamentals for solid growth of the franchise sector in 2014 remain strong. Income, consumer confidence and spending will all be stronger in 2014 than 2013, and both housing starts and existing home sales are expected to accelerate following a weak first quarter."

Read the full IHS report.