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Franchise Business Index improves for fourth consecutive month in March

The Franchise Business Index (FBI), an index of the economic health of the franchising industry, increased by 0.3 percent in March, boosted by modest improvements in labor market indicators and credit availability, the International Franchise Association announced today. The index rose to 109.3 (Jan 2000=100). This was the third consecutive monthly increase of 0.3 percent. Compared with March 2012, the index was up 1.9 percent.

“Demand for franchise growth remains strong and with lending to franchise businesses reaching its highest level since the recession, the industry remains a driver of growth and job creation despite the uncertain economic and public policy environment. While we are pleased the index grew for the third consecutive month, the overall rate of growth is still problematic and could be much higher if the franchise and small business community was not facing continued threats of higher taxes, costs associated with the Affordable Care Act, fluctuating commodity and energy prices and the prospect of a minimum wage hike that would chip away further at the bottom line and make it more difficult to grow a business.” – Stephen J. Caldeira, IFA President and CEO

The small business optimism component of the FBI fell in March. Credit availability for small businesses, while still not strong enough to meet the industry’s forecasted demand, showed improvement. The index component measuring employment in franchise intensive industries was up only slightly, but a fall in the unemployment rate (due to more individuals dropping out of the workforce) and an increase in the index of self-employment in the economy showed larger gains.

Designed to provide timelier 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. This month’s release of the index reflects an update of the historical series to incorporate data revisions in all index components and to replace the component based on personal consumption expenditures with more timely data on monthly retail sales.

“The economy’s fundamentals are improving particularly in housing, but policy headwinds from Washington are still holding it back for now” said IHS Global Insight Senior Economist James Gillula. “The test in the coming months will be whether the boost from recovering housing markets can more than offset the negative effects on growth of the reinstatement of the full payroll tax and the federal spending sequester.”

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