Franchise Business Economic Outlook for 2017 - Franchise Economy

Franchise Business Economic Outlook for 2017 August Forecast Update

Prepared for:

International Franchise Association Franchise Education and Research Foundation

By:

IHS Markit Economics August 2017

No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

About IHS Markit Economics IHS Economics is one of the leading economic analysis and forecasting firms in the world. With over 600 economists and industry specialists in 25 offices worldwide, IHS Economics offers market intelligence for over 200 countries and coverage of over 170 industries that helps more than 3,800 clients to monitor, analyze, and interpret conditions affecting their business. IHS Economics has an established track record for providing rigorous, objective forecast analysis and data to businesses, governments, and industry associations around the world.

About IHS Markit (www.ihs.com) IHS Markit (NASDAQ: INFO) is the leading source of insight, analytics and expertise in critical areas that shape today’s business landscape. Businesses and governments in more than 150 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS Markit to make high-impact decisions and develop strategies with speed and confidence. IHS Markit is a dynamic team that includes more than 5,000 analysts, data scientists, financial experts and industry specialists. IHS Markit delivers its clients a powerful combination of world-class expertise, knowledge and solutions so they can make more informed decisions to enable their long-term, sustainable growth. For more information, contact: John Reynolds President, IFA Franchise Education and Research Foundation [email protected] Brendan O’Neil Managing Director, IHS Economics [email protected] For press information, contact: Katherine Smith Media Relations Manager, IHS [email protected]

(C) Copyright 2017. IFA Franchise Education and Research Foundation. ALL RIGHTS RESERVED. All information contained herein is obtained by IHS Economics from sources believed by it to be accurate and reliable. All forecasts and predictions contained herein are believed by IHS Economics to be as accurate as the data and methodologies will allow. Because of the possibilities of human and mechanical error, however, as well as other factors such as unforeseen and unforeseeable changes in political and economic circumstances beyond IHS Economics control, the information herein is provided “as is” without warranty of any kind, and IHS Economics, AND ALL THIRD-PARTY PROVIDERS, MAKE NO REPRESENTATIONS OR WARRANTIES EXPRESS OR IMPLIED TO ANY SUBSCRIBER OR ANY OTHER PERSON OR ENTITY AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY OF THE INFORMATION OR FORECASTS CONTAINED HEREIN.


Table of Contents EXECUTIVE SUMMARY .................................................................................................................................. 1 Franchise Business Index .......................................................................................................................... 4 INTRODUCTION ............................................................................................................................................. 6 THE ECONOMIC OUTLOOK............................................................................................................................ 7 Policy Effects ............................................................................................................................................. 9 OUTLOOK FOR FRANCHISE BUSINESS ......................................................................................................... 10 Outlook Summary ................................................................................................................................... 10 Establishments by Business Line ............................................................................................................. 17 Employment by Business Line................................................................................................................. 18 Output by Business Line.......................................................................................................................... 20 Franchise Businesses' Contribution to GDP ............................................................................................ 21 Distribution by Sector ............................................................................................................................. 21 Output per Employee.............................................................................................................................. 23 State Franchise Outlook .............................................................................................................................. 25 State Overview ........................................................................................................................................ 25 Appendix A: Composition of Franchise Business Lines ........................................................................... 28 Appendix B: Methodology ...................................................................................................................... 29



EXECUTIVE SUMMARY This report presents an update of the outlook for the franchise sector of the US economy in 2017 prepared by IHS Markit Economics for the International Franchise Association’s Franchise Education and Research Foundation (FERF). The economy has positive momentum moving into the second half of 2017. After growth in the first half that fell short of expectations, real GDP is projected to increase at annual rates of 3.1% in the third quarter and 2.4% in the fourth quarter. Our forecast of real GDP growth for all of 2017, at 2.1%, is down slightly from the 2.3% forecast at the time of our January 2017 report on the franchise business outlook. Growth will be broadly based, with solid gains in consumer spending, residential investment, business fixed investment, and exports. Real consumer spending got back on track in the second quarter and is projected to increase at 2.6–2.7% annual rates during the final two quarters of 2017. Household finances continue to improve, supported by gains in employment, real incomes, stock prices, and home values. Government spending is also expected to increase after falling in the first quarter, due to the release of federal funds for surface transportation projects and additional funding of defense and security. The IFA/IHS Franchise Business Index continues to signal steady growth in the franchise sector. The index was 2.4% above its year-ago level in June, matching the pace at the end of 2016. However, franchise employment growth as reported by ADP has slowed somewhat in the first half of the year after posting the highest growth rate in 2016 since the series began in 2011. Growth of the franchise restaurant business lines, which account for nearly three-fifths of franchise employment, has been slower than expected, and this will contribute to slightly slower growth of overall franchise sector indicators in 2017. Nonetheless, we continue to project that the franchise sector will grow faster than the overall economy in 2017 as it has in recent years: 

We expect the number of franchise establishments to increase 1.6% in 2017 to 745 thousand.



Franchise employment is forecast to grow 3.1% in 2017, and franchise employment will continue to outpace growth in businesses economy-wide. Total private nonfarm employment is forecast to increase 1.7% this year.



The output of franchise businesses in nominal dollars is projected to increase 5.3% in 2017 to $711 billion.



The gross domestic product (GDP) of the franchise sector will increase by 5.1% to $426 billion in 2017. This will exceed the growth of US GDP in nominal dollars, which is projected at 3.9%. The franchise sector will contribute approximately 3% of US GDP in nominal dollars.

There is considerably greater uncertainty regarding the growth outlook for 2018. The IHS Markit view is that modest fiscal stimulus (personal and corporate tax cuts, along with a boost in infrastructure spending) is still possible and will help real GDP growth to accelerate to 2.7% next year. However, if such stimulus is not forthcoming, we estimate that real GDP growth will be approximately 0.4 percentage point lower in 2018, when the full impact of such stimulus would likely be felt. The good news is that the IHS Economics No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

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fundamentals of the US economy remain solid enough that, even without any stimulus, it can amble along at a decent pace for the next year or two. While it is too early to assess the effects of Hurricane Harvey, it will likely increase the volatility of growth in the second half of 2017, with reduced growth in the third quarter offset by a boost to growth in the fourth.

Franchise Business Economic Outlook: August 2017 Forecast 2013

2014

2015

2016

Forecast 2017

Establishments Percent change

697,944

708,974 1.6%

720,458 1.6%

733,297 1.8%

745,078 1.6%

Employment ('000) Percent change

6,962

7,164 2.9%

7,379 3.0%

7,645 3.6%

7,879 3.1%

Output ($Billions) Percent change

570.7

602.7 5.6%

637.5 5.8%

675.7 6.0%

711.4 5.3%

GDP ($Billions) Percent change

344.4

363.2 5.5%

382.9 5.4%

405.0 5.8%

425.6 5.1%

This report also presents updated estimates of franchise growth in 2017 at the state level. Some highlights include: IHS Economics No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

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

States in the South and West will lead the nation in franchise employment and output growth in 2017. Economic growth in both regions has benefited greatly in recent years from renewed flows of domestic migration.



Strength in services has proved to be a prominent economic driver in these regions. Particularly in the West South Central region, the service sector has helped offset the oil related disruption. Low oil prices have provided stimulus to consumers and, in turn, help sectors closely tied to discretionary spending such as leisure/hospitality and retail trade.

Our analysis is based on a grouping of franchise businesses into 10 broad business lines. The growth outlook differs among the groups, with output growth in 2017 ranging from a low of 3.0% in the Commercial & Residential Services business line to 6.1% in Personal Services. Other highlights of the revised industry forecast for 2017 are: 

Franchise Personal Services have experienced strong growth over the past year, and in our updated forecast the Personal Services business line is now projected to rank first in growth of the number of establishments, employment and output in 2017.



After a very strong year of employment and output growth in 2016, the franchise restaurant business lines are seeing slower growth this year. Still, the franchise Quick Service Restaurant and Table/Full Service Restaurants business lines will rank 2nd and 3rd, respectively, in employment and output growth in 2017.



The nation’s housing outlook, while still showing month-to-month volatility, has improved since the beginning of the year. We have revised our forecast of the franchise Real Estate business line up slightly, and it now ranks 4th in output growth in 2017, at 5.8%.

Franchise Business Economic Outlook 2017: August 2017 Forecast Employment (thousands)

Establishments Percent Amount Change Over Previous Year Automotive Business Services Commercial & Residential Services Lodging Personal Services Quick Service Restaurants Real Estate Retail Food Retail Products & Services Table/Full Service Restaurants

TOTAL

Output ($Billions)

Percent Amount Change Over Previous Year


37,585 106,498 65,817 27,990 109,666 190,649 62,701 52,608 60,187 31,377

1.3% 1.3% 1.1% 1.0% 2.5% 1.8% 1.7% 0.8% 1.5% 1.6%

195 640 247 619 487 3,615 250 465 343 1,019

2.5% 2.1% 1.0% 1.1% 4.1% 3.7% 2.3% 2.0% 2.8% 3.5%

41.6 97.8 43.5 71.0 34.9 236.8 50.5 37.6 30.7 67.0

4.5% 4.9% 3.0% 4.8% 6.1% 6.0% 5.8% 3.7% 5.8% 5.8%

745,078

1.6%

7,879

3.1%

711.4

5.3%

IHS Economics No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

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Franchise Business Index The estimates of output, employment and the number of establishments in the franchise industry reported here provide valuable measures of the size and growth of the industry. But, because most of the key data inputs required to make these estimates are published only on an annual basis, the estimates are made only at an annual frequency. A more timely reading of the business environment for franchise operations in the US is provided by the Franchise Business Index (FBI) – a monthly index of franchise activity that was developed for IFA by IHS Markit. The FBI combines indicators of the growth or decline of industries where franchise activity has historically been concentrated with measures of the demand for franchise business services and the general business environment. The components of the index are:      

Employment in Franchise Businesses (ADP) Number of Self Employed (BLS) Unemployment Rate (BLS) Retail Sales of Franchise-Intensive Industries (Census Bureau) Small Business Optimism Index (NFIB) Small Business Credit Conditions Index (NFIB)

The Franchise Business Index continues to signal steady growth in the franchise sector. A slight downturn in June reflects the volatility seen in the monthly economic data this year due to the uncertainty around policy and global events. The FBI increased by an average 0.1% per month over the last three months for which data are available (April through June 2017), and the index was up 2.4% in June compared to June 2016. This matches the year-over-year pace at the end of 2016. Over the most recent 3-month period all components of the index made positive contributions to the FBI except for credit conditions, which slowed by an average -0.2%. Among individual components, strong gains in retail sales of franchise-intensive retailers contributed most. The self-employment component neither increased nor decreased on average over the 3-month period.

Franchise Business Index Percent Change

Mar 2017

Apr 2017

May 2017

June 2017

12-month June-June

122.0 0.2%

122.2 0.2%

122.4 0.1%

122.3 -0.1%

2.4%


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INTRODUCTION This report presents an update of the outlook for the franchise sector of the US economy in 2017 prepared by IHS Markit Economics for the International Franchise Association Franchise Education and Research Foundation. The following section presents a summary of the current IHS forecast of the US economy in 2017, with attention to economic indicators that relate to sectors of the economy where there is a significant concentration of franchising. We then present an overview of our estimates and forecasts of franchising for 10 business lines: 1 1. Automotive 2. Business Services 3. Commercial & Residential Services 4. Lodging 5. Personal Services 6. Quick Service Restaurants 7. Table/Full Service Restaurants 8. Real Estate 9. Retail Food 10. Retail Products and Services For each of the 10 business format lines, the projections include estimates from 2013 through 2016 and an initial forecast for 2017 of: 

Franchise establishments2



Franchise employment3



Franchise nominal output4

This report also includes a forecast of 2017 franchise growth in each of the 50 states and Washington, DC for employment, establishments, payroll and output.

1

This report does not include estimates for product-distribution franchises, such as automotive and truck dealers, gasoline service stations without convenience stores, and beverage bottlers. 2

An establishment is a single physical location at which business is conducted or services or industrial operations are performed. A business may consist of more than one establishment. An establishment may be owned by the franchisor or the franchisee. 3

Positions filled by part-time and full-time employees or by self-employed individuals.

4

Nominal output is the gross value of goods and services produced -- a concept that is comparable with "sales" for most industries. In government input-output accounts, the output of goods-producing industries is measured by the value of shipments. For most other industries, output is measured by receipts or revenues from goods and services sold. A special case is the output of the wholesale and retail industries, which is measured generally as the difference between receipts or revenues and the cost of goods sold—this difference is referred to as "margin." IHS Economics No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

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THE ECONOMIC OUTLOOK Recent data on the US economy have been mixed. While the underlying fundamentals driving consumer spending remain positive—a strong job market, more-than-adequate income and wealth gains, and elevated levels of consumer confidence—recent readings on automotive sales, retail sales, and overall consumer spending suggest that American households are taking a breather. However, this spending hiatus is likely temporary and not the beginning of an extended period of softness. IHS Markit expects consumer spending and overall economic growth to pick up in the second half of 2017. Our forecast of real GDP growth for the full year is 2.1%, which is revised down slightly from the 2.3% forecast at the time of our January 2017 report on the franchise business outlook. Growth will be broadly based, with solid gains in residential investment, business fixed investment, and exports, as well as consumer spending. After two quarters of decline, government spending is also expected to increase due to the release of federal funds for surface transportation projects and additional funding of defense and security.

Consumer spending will remain an engine of US economic growth in the second half of the year and beyond. Income tax cuts in 2018 should fuel faster real income growth and a higher personal saving rate. Real disposable income growth will increase from 1.7% this year to 3.6% in 2018. Real consumption is projected to increase 2.6% this year, near lasts year’s growth rate, and to pick up to 3.0% in 2018. After a slight correction in the spring quarter, the housing market recovery will resume this summer. An upturn in homeownership among young adults, low inventories of homes for sale, rising prices, and IHS Economics No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

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homebuilder optimism should lead to more construction. Thus, real residential fixed investment is projected to increase at a 3.9% average annual rate over the third and fourth quarters. After stalling in 2016, capital spending revived in the first half of 2017. Business fixed investment saw its strongest jump in five years during the first quarter, boosted by over-the-top real spending growth on mines and wells. Expanding global markets, relatively low financing costs, and an improving regulatory climate are also driving the upturn in investment. Real nonresidential fixed investment is expected to advance at a 4.9% annual rate during the second half, led by transportation equipment and commercial construction. Both imports and exports have picked up from last year. Strengthening world demand and the fading effects of the strong dollar have boosted exports. Currency markets initially factored in an acceleration in US growth in 2017 due to lower corporate tax rates and a rollback of regulations. As the likelihood of these receded, the dollar lost ground and is now back to where it stood before the election. Meanwhile, stronger domestic demand – particularly for capital goods – has strengthened import growth. Both exports and imports are expected to increase steadily over the next two years.

The Economic Outlook for 2017 (Annual percent change)

2013

2014

2015

2016

2017

Real Gross Domestic Product

1.7%

2.6%

2.9%

1.5%

2.1%

Total Nonfarm Employment

1.6%

1.9%

2.1%

1.8%

1.5%

Accommodations and Food Services

3.6%

3.0%

3.2%

3.0%

2.3%

Personal Services

1.0%

1.5%

1.0%

1.1%

1.2%

-1.4%

3.6%

4.2%

1.4%

1.7%

1.5%

2.9%

3.6%

2.7%

2.6%

Food Services

1.3%

3.3%

4.5%

2.7%

1.0%

Accommodations

4.1%

3.4%

3.1%

0.9%

3.7%

Personal Services

-1.0%

2.6%

2.2%

4.1%

3.1%

Retail Sales (nominal dollars)

3.8%

4.2%

2.6%

3.0%

3.8%

Existing Home Sales

9.1%

-3.1%

6.3%

3.9%

2.5%

Com'l & Indus. Loans Outstanding, Com'l.Banks

6.8%

12.6%

10.3%

7.3%

2.4%

Real Disposable Income Real Personal Consumption

IHS Markit Economics, August 2017 Forecast


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Hurricane Harvey will increase the volatility of growth in the third and fourth quarters. While it is still too early to do a full damage assessment as this report is being prepared, Harvey is shaping up to be the second or third worst hurricane in recent US history. The cost of the storm is currently estimated to come in somewhere between $60 billion and $80 billion. Hurricane Katrina, which devastated New Orleans, cost around $110 billion. Hurricane Sandy, which slammed the Caribbean, US East Coast and, especially, New York City, cost about $75 billion. Mercifully, the death toll, so far, from Harvey (less than 50) is much lower than either Katrina (around 1,800) or Sandy (around 250, of which about 70 were in the United States). As is common with such happened with past storms, Harvey will hurt near-term growth. Loss of life, damaged infrastructure (especially in the energy and chemicals sectors), and disrupted businesses will take a huge toll on the devastated areas. Given the importance of the energy and chemicals sectors along both the Texas and Louisiana Gulf coasts, the impact on the overall economy will also be noticeable. However, as in the case of past storms, the reconstruction efforts—which will likely kick into high gear in the fourth quarter—will boost growth. The extent of the reduction in growth in the third quarter and the rebound in the fourth will depend on a number of factors, including the duration of the storm, the extent of the damage to key segments of the affected economies, and how quickly the reconstruction efforts can get underway. Early estimates put the range of third-quarter growth reductions at 0.3–1.5 percentage points. Given what we know now, IHS Markit expects that growth in the third quarter—which was previously estimated at around 3.5%—to be cut by 0.5–0.6 percentage point. Fourth-quarter growth—previously estimated at around 2.4%—will likely be bumped up by a few tenths of a percentage point. The bottom line is that despite the hurricane-induced volatility, average growth in the second half of 2017 is still likely to come in between 2.5% and 3.0%.

Policy Effects There is considerably greater uncertainty regarding the growth outlook for 2018. The IHS Markit view is that modest fiscal stimulus (personal and corporate tax cuts, along with a boost in infrastructure spending) is still possible and will help real GDP growth to accelerate to 2.7% next year. Our outlook incorporates our take on policies proposed by the new administration: lower personal and corporate federal taxes, somewhat consistent with the House Republican plan (but excluding the borderadjustment tax); removal of some tax loopholes; $800 billion in overseas profits repatriated to face a 10% tax; and $250 billion in additional infrastructure spending over 10 years. However, if such stimulus is not forthcoming, we estimate that real GDP growth will be approximately 0.4 percentage point lower in 2018, when the full impact of such stimulus would likely be felt. The good news is that the fundamentals of the US economy remain solid enough that, even without any stimulus, it can amble along at a decent pace for the next year or two.


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OUTLOOK FOR FRANCHISE BUSINESS Outlook Summary Many of the factors that created a drag on real GDP growth in 2016, such as an inventory correction and plunging oil and gas investment, were of less direct relevance for the health of the franchise sector of the economy. Thus, the franchise sector continued to show solid gains despite real GDP growth of only 1.5%. With more complete data for 2016, our estimates of franchise employment and output growth have been revised upward slightly from our January 2017 report on the franchise business outlook. We estimate that 2016 franchise employment growth accelerated to 3.6%, with output growth of 6.0%. Just as the franchise sector was not impacted as much by the economic headwinds mentioned above, however, it is being less impacted than the overall economy as they dissipate in 2017. We expect slightly slower franchise growth in 2017, even as real GDP growth improves to 2.1% this year. Nonetheless, the franchise sector will still continue to grow faster than the economy as a whole in most of its business lines: 

We expect the number of franchise establishments to increase 1.6% in 2017 to 745 thousand.



Franchise employment is forecast to grow 3.1% in 2017 – down slightly from our forecast of 3.3% in January as year-to-date growth of the franchise restaurant business lines has been slower than expected. Franchise employment continues to outpace growth in businesses economy-wide. Total private nonfarm employment is forecast to increase 1.7% this year.



The output of franchise businesses in nominal dollars is projected to increase 5.3% in 2017 to $711 billion.

Franchise Business Economic Outlook 2017: August 2017 Forecast Employment (thousands)

Establishments Percent Amount Change Over Previous Year Automotive Business Services Commercial & Residential Services Lodging Personal Services Quick Service Restaurants Real Estate Retail Food Retail Products & Services Table/Full Service Restaurants

TOTAL

Output ($Billions)



37,585 106,498 65,817 27,990 109,666 190,649 62,701 52,608 60,187 31,377

1.3% 1.3% 1.1% 1.0% 2.5% 1.8% 1.7% 0.8% 1.5% 1.6%

195 640 247 619 487 3,615 250 465 343 1,019

2.5% 2.1% 1.0% 1.1% 4.1% 3.7% 2.3% 2.0% 2.8% 3.5%

41.6 97.8 43.5 71.0 34.9 236.8 50.5 37.6 30.7 67.0

4.5% 4.9% 3.0% 4.8% 6.1% 6.0% 5.8% 3.7% 5.8% 5.8%

745,078

1.6%

7,879

3.1%

711.4

5.3%


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The gross domestic product (GDP) of the franchise sector will increase by 5.1% to $426 billion in 2017. This will exceed the growth of US GDP in nominal dollars, which is projected at 3.9%. The franchise sector will contribute approximately 3% of US GDP in nominal dollars. The following chart shows how the franchise economy has fared over the last three years, along with our 2017 forecast, by various measures. Growth rates of output and GDP are in nominal dollars.

To provide background for our view of how different segments of the franchise sector will fare in 2017, we review IHS forecasts of employment and output in the industries where there is a large concentration of franchise businesses. Key drivers of the franchise economy drawn from the IHS US Industry and US Macroeconomic forecasts are summarized below. Automotive: Light-vehicle unit-sales peaked in December, and all but one month since then has suffered a decline. June’s light vehicle sales slowed to a 16.6-million-unit pace, the weakest showing since October 2014. Total sales in the first half of 2017 were 2% below 2016. One factor in the demand for new vehicles is the availability of credit, and credit standards for auto loans have increased markedly this year. According to the New York Fed and Equifax, the median credit rating for customers granted new auto loans jumped 6 points, to 706, in the first quarter – the largest increase in six quarters and the highest level since first quarter 2011. New auto loan balances correspondingly took a step back. A steady increase in auto loan delinquencies has provoked this caution by lenders. The share of auto loan balances more than 30 days delinquent in the fourth quarter of 2016 was 7.46%, more than a percentage point higher than at their low point in 2012. However, delinquent auto loans remain low by recent standards. Lenders appear intent on keeping it that way. We expect total light vehicle sales in 2017 to be down 2.1%. IHS Economics No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

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The growth of consumer spending on motor vehicle parts and accessories has also slowed. Spending in nominal dollars in the first half of 2017 was only 1.6% above the corresponding period of 2016. We have revised our January forecast of full-year consumer spending in this category downward to show growth of only 1.3% in 2017 from 3.1% in 2016. Franchise employment growth in the automotive business line is estimated to be 3.0% in 2016 and will slow slightly to 2.5% in 2017. While this will outpace employment growth in the industry economy-wide (measured as overall auto parts and tires retailers and the automotive service industry), it will keep the automotive business line among the slower growing of the 10 franchise business lines, ranking fifth in employment growth and eighth in output growth. Growth of the number of establishments in the automotive business line will slow from 1.5% in 2016 to 1.3% in 2017. Commercial & Residential Services: Economy-wide employment in facilities support services grew less than 1% in 2016 and is negative on a year-over-year basis this year. ADP franchise employment data show a similar pattern in a broader category of business services. We project the commercial & residential services business line to grow at the slowest pace of the 10 franchise business lines in 2017. Our estimates of establishment, employment and output for this business line show 2017 growth of 1.1%, 1.0% and 3.0%, respectively – near the estimated pace of growth in 2016 in all instances. Table/Full Service Restaurants: Various indicators related to the restaurant industry economy-wide show a slow-down in 2017 compared to growth rates registered in 2016. Employment growth in all restaurants slowed from 3.3% in 2016 to 2.4% in the first seven months of this year. Sales of restaurants economy-wide show a similar slowdown from growth near 6% in 2016 to 3% in the first half of 2017 on a non-seasonally adjusted basis. (The decline is smaller in the seasonally adjusted data, which do not IHS Economics No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

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report QSR and full-service restaurants separately.) The broader personal consumption expenditures category of spending on food services grew 5.4% in nominal dollars in 2016 and the IHS macroeconomic forecast shows growth slowing to 3.4% in 2017. The retail sales data show slightly faster growth economy-wide in the QSR business line compared with full-service restaurants in 2016 and year-to-date in 2017.

We project employment growth in the franchise table/full service restaurants business line to slow from 4.0% in 2016 to 3.5% in 2017. Output growth will slow from 7.4% to 5.8%. Both 2017 growth rates have been revised downward since our January 2017 report on the franchise business outlook. Despite this expected slowdown, the table/full service restaurants business line will remain one of the growth leaders among the 10 business lines, ranking third in both employment and output growth in 2017. Quick Service Restaurants: A similar slowdown in employment and output in 2017 is projected for the QSR business line. We project employment growth in the franchise QSR business line to slow from 4.6% in 2016 to 3.7% in 2017. Output growth will slow from 7.5% to 6.0%. Again, both 2017 growth rates have been revised downward slightly since our January 2017 report. Growth of the franchise QSR business line will continue to slightly outpace the table/full service business line, and the QSR business line will rank second only to personal services among the 10 business lines in employment and output growth in 2017. Retail Food: Although restaurants are expected to continue to do well in 2017, it is becoming increasingly pricy to eat out compared with preparing food at home. For example, the IHS Markit IHS Economics No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

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forecast of the price deflator for food for off-premises consumption shows an average price increase of 0.5% in 2016-2017 compared to a 2.6% average price increase for spending at restaurants. This should help the retail food franchise business line. Retail sales of food and beverage stores of all types (including their sales of non-food items) grew by 2.3% in 2016, and increased 2.5% on a year-over-year basis in the first half of 2017. Economy-wide employment in the industry grew 0.9% in 2016 and slowed to a 0.4% pace in the first half of 2017. We expect franchise employment and output within the retail food business line to outpace these industrywide growth trends. Our forecast for this business line shows a 2.0% increase in employment and 3.7% growth of sales (output) in 2017. Among all 10 business lines, the Retail Food business line will rank 8th in employment growth and 9th in output growth in 2017.

Sales of Food and Beverage Stores: Growth in Nominal Dollars 6% 5% 4% 3% 2% 1% 0% 2013

2014

2015

2016

YTD 2017

Source: Census Bureau, Retail Sales

Lodging: Employment and output in the lodging industry has slowed over the last two years. Economywide employment growth in the industry grew only 1.2% in 2016, and year-to-date growth in 2017 is under 1%. Personal consumption expenditures on accommodations in nominal dollars, which measures only household and not business spending, slowed to 3.5% growth in 2016 and but is expected to improve in 2017. Similarly, recent ADP data on the franchise lodging industry show employment growth near 1%. We estimate that franchise employment in the lodging business line will grow 1.1% in 2017 – down from 1.4% in 2016. Output growth in the lodging business line is expected to grow 4.8% in 2017, ranking it 7th among the 10 business lines.


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Real Estate: In housing markets, the supply of homes available for sale, new or existing, is not keeping pace with demand. As a result, prices for new and existing homes have reached all-time highs. For the first time ever, the average price of a new home topped $400,000 in May – nearly 10 times pricier than the average home in 1975 –for an average annual increase of 5.6%. Rising prices and relatively optimistic homebuilders should be spurring more building, but sporadic weakness in housing starts and permits (especially in multifamily units) this year suggests that homebuilders may be facing challenges, especially in getting the necessary financing to start new construction. Existing home sales fell 1.8% in June. However, first-half existing home sales were up 3.0% over 2016, and we anticipate a pick-up in housing market activity in the second half of the year. Our forecast of existing home sales has been boosted compared to expectations at the beginning of the year and now shows a 2.5% gain in 2017. Housing starts are projected to be up by 3.3%, led by a 7.5% increase in single-family starts. We estimate that the output of the franchise real estate business line will increase 5.8% in 2017 – up slightly from 5.5% growth in 2016 – ranking it 4th among the 10 business lines. Employment growth in the real estate business line is expected to accelerate to 2.3% in 2017 – 6th among all business lines. Retail Products & Services: Nonstore (mostly online) retailers continue to post double-digit growth rates in sales, while the sales of many categories of brick-and-mortar stores have been flat to declining. Department store and electronic store sales have been running negative, while clothing stores and sporting goods stores have posted at best 1-2% growth. However, the franchise retail products & services business line continues to outperform these other categories of retailers. We project employment in franchise retail products & services will increase 2.8% in 2017 – fourth among all business lines – and output will increase 5.8% -- fifth among business lines. Business Services: The IHS Markit US Industry Service forecasts a slight slowdown in economy-wide business services growth. Employment in professional and technical services, including accounting and bookkeeping services and architectural and engineering services, has increased at a pace just above 3% over the last two years, but growth is projected to slow to 2.4% in 2017. Output growth will be just under 5%. The franchise business services industry has been one of the leaders among franchise business lines in past years, but we estimate that employment growth in franchise business services slowed to 2.3% in 2016 with output up only 5.0%. We project that growth based on both indicators will slow further in 2017 to 2.1% and 4.9%, respectively, below average for the franchise sector as a whole. Personal Services: The personal services business line includes a diverse array of services such as educational services, health care, entertainment and recreation, personal and laundry services, and selected financial activities. The growth of spending on personal services economy-wide has been supported by gains in real income and household net worth. Household finances are also in excellent shape, helped by the post-election stock market rally, rising home prices, and nearly a decade of restraint in borrowing. Economy-wide personal consumption spending is expected to grow 4.3% in 2017 (in nominal dollars) after growing 4.0% in 2016. ADP franchise employment data show a surge in the growth of franchise personal services over the last two years, well ahead on economy-wide average growth, with somewhat slower growth for personal IHS Economics No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Page 15

service retailers. We estimate that employment in franchise personal services increased 4.0% in 2016 and will accelerate to 4.1% in 2017. Output is projected to be up 6.1% in 2017 following a 6.0% increase in 2016. Franchise personal services will lead all other business lines in employment and output growth in 2017.


Page 16

Establishments by Business Line We estimate that the total number of franchise establishments across all 10 business lines increased by 1.8% in 2016, and growth will slow slightly to 1.6% in 2017. The personal services line will take the lead with 2.5% growth, followed closely by quick service restaurants at 1.8% and the real estate business line at 1.7%.

Franchise Establishments by Business Line: August 2017 Forecast

Automotive

2013

2014

2015

2016

Forecast 2017

35,503

35,913

36,535

37,100

37,585

1.2%

1.7%

1.5%

1.3%

99,791

101,590

103,596

105,080

106,498

1.8%

2.0%

1.4%

1.3%

62,678

63,552

64,371

65,083

65,817

1.4%

1.3%

1.1%

1.1%

26,939

27,396

27,712

27,990

1.9%

1.7%

1.2%

1.0%

102,635

104,333

106,940

109,666

2.2%

1.7%

2.5%

2.5%

180,717

183,332

187,368

190,649

1.5%

1.4%

2.2%

1.8%

58,877

59,722

60,712

61,653

62,701

1.4%

1.7%

1.5%

1.7%

50,320

50,933

51,649

52,165

52,608

1.2%

1.4%

1.0%

0.8%

Percent change Business Services Percent change Commercial & Residential Services Percent change Lodging

26,428 Percent change

Personal Services


Quick Service Restaurants

178,133

Percent change Real Estate Percent change Retail Food Percent change Retail Products & Services

56,292

57,144

58,238

59,326

60,187

Percent change Table/Full Service Restaurants

29,524

1.5% 29,829

1.9% 30,296

1.9% 30,870

1.5% 31,377

1.0%

1.6%

1.9%

1.6%

708,974

720,458

733,297

745,078

Percent change

Total

697,944


Page 17

Employment by Business Line We estimate that total franchise employment grew 3.6% in 2016, but growth will slow to 3.1% in 2017 due primarily to slower growth in the restaurant business lines, which account for nearly three-fifths of franchise employment. Despite their slower growth, the QSR and table/full service restaurant business lines will continue to be the growth leaders, ranking second and third, respectively in 2017 employment growth. Personal services will move up to the top spot with growth of 4.1%.


Page 18

Franchise Employment by Business Line: August 2017 Forecast

Automotive

2013

2014

2015

2016

Forecast 2017

175,209

179,092

185,127

190,674

195,477

2.2%

3.4%

3.0%

2.5%

592,643

612,496

626,370

639,524

3.0%

3.3%

2.3%

2.1%

238,663

241,819

244,136

246,577

3.3%

1.3%

1.0%

1.0%

588,878

603,507

611,956

618,688

3.0%

2.5%

1.4%

1.1%

440,062

450,230

468,239

487,437

3.5%

2.3%

4.0%

4.1%

3,232,917

3,332,861

3,486,173

3,615,161

3.1%

3.1%

4.6%

3.7%

234,079

239,263

244,048

249,661

1.8%

2.2%

2.0%

2.3%

431,819

445,270

455,511

464,621

2.7%

3.1%

2.3%

2.0%

310,433

321,999

333,695

343,038

2.9%

3.7%

3.6%

2.8%

915,703

946,317

984,170

1,018,616

2.3%

3.3%

4.0%

3.5%

7,164,289

7,378,889

7,644,972

7,878,800

Percent change Business Services


Commercial & Residential Services

231,139

Percent change Lodging


Personal Services



3,135,711

Percent change Real Estate


Retail Food


Retail Products & Services

301,604

Percent change Table/Full Service Restaurants

895,391

Percent change

Total

6,962,001

Franchise Business Employment Growth: August 2017 Forecast 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2014

2015

2016

2017


Page 19

Output by Business Line We estimate that total output across all franchise business lines grew 6.0% in 2016 – up from 5.8% growth recorded in 2015. We expect the pace of growth in 2017 to slow to 5.3% due to slower growth of the restaurant industry. Both the QSR and table/full service restaurant business lines will see slower growth in 2017, but they will remain among the growth leaders, ranking second and third, respectively, behind the personal services business line.

Franchise Output by Business Line: August 2017 Forecast ($billions)

2013

2014

2015

Forecast 2016 2017

Automotive

34.57

36.15

37.94

39.82

4.6%

5.0%

5.0%

4.5%

79.09

83.78

88.77

93.24

97.78

5.9%

6.0%

5.0%

4.9%

39.37

40.99

42.20

43.46

4.4%

4.1%

3.0%

3.0%

60.63

64.43

67.71

70.96

6.6%

6.3%

5.1%

4.8%

29.66

31.08

32.94

34.94

4.9%

4.8%

6.0%

6.1%

195.84

207.87

223.39

236.79

5.8%

6.1%

7.5%

6.0%

42.87

45.29

47.76

50.51

5.3%

5.6%

5.5%

5.8%

31.94

33.39

34.93

36.31

37.64

4.5%

4.6%

4.0%

3.7%

24.12

25.61

27.24

29.03

30.70

52.25

6.2% 55.43

6.4% 58.93

6.6% 63.29

5.8% 66.96

6.1%

6.3%

7.4%

5.8%

602.7

637.5

675.7

711.4

Percent change Business Services Percent change Commercial & Residential Services

37.70

Percent change Lodging

56.89 Percent change

Personal Services



185.13

Percent change Real Estate


Retail Food Percent change Retail Products & Services Percent change Table/Full Service Restaurants Percent change

Total

570.7

41.61


Page 20

Franchise Businesses' Contribution to GDP By analyzing the components of value added in each of the industries where franchise businesses are concentrated and calculating the relationship between gross output (sales) and value added in these industries, IHS Markit Economics developed estimates of the contribution to US GDP by the franchise sector as a whole. We estimate that franchise businesses accounted for approximately 3% of US private GDP or a total of $405 billion in 2016. Based on our employment and output forecasts for franchising in 2017, we project that nominal GDP of the franchise sector will increase by 5.1% to $426 billion in 2017. This will exceed the growth of total US GDP in nominal dollars, which – with moderately low inflation – is projected at only 3.9% in 2017.

Distribution by Sector This section focuses on the distribution of the 10 franchise business lines in terms of the number of establishments, employment, and output, based on our forecast for 2017. The quick service restaurants business line is the largest category, with 26% of all franchise establishments, and accounts for 46% of franchise employment. This business line is expected to contribute 33% of total output in 2017. Second in size in terms of the number of establishments is the personal services line, with 15% of the total. However, these are generally smaller businesses. The personal services group will account for only 6% of franchise employment and 5% of output. The table/full service restaurants group occupies the second-largest share of employment, accounting for 13% of the total. The business services segment, which has higher ratios of output per establishment and per employee, is the second-largest contributor to the value of output in the franchise sector, with 14% of the total. IHS Economics No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Page 21


Page 22

Output per Employee The average output per worker in the franchise sector has grown since 2013, increasing at a compound annual growth rate of 2.5%, and will continue to rise in 2017. Average output per employee in franchise businesses is projected to increase to 90,287 in 2017 – up 2.2%. In 2017, this output-per-worker ratio will vary among the 10 franchise business lines from a low of $65,499 (quick service restaurants) to a high of $212,864 (automotive). The lodging business line has been one of the fastest growing in terms of output per worker over the 2014-2016 timeframe, with average annual growth of 3.6%. The lodging business line will be the productivity growth leader in 2017 with an increase of 3.7%, followed by real estate with a 3.4% increase.


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Franchise Productivity by Business Line: August 2017 Forecast (Dollars per worker) Automotive

2013

2014

2015

2016

Forecast 2017

197,307

201,852

204,940

208,838

212,864

2.3%

1.5%

1.9%

1.9%

137,465

141,367

144,932

148,858

152,895

2.8%

2.5%

2.7%

2.7%

163,105

164,961

169,507

172,854

176,253

1.1%

2.8%

2.0%

2.0%

99,473

102,959

106,759

110,645

114,694

3.5%

3.7%

3.6%

3.7%

67,400

69,031

70,349

71,681

1.4%

2.4%

1.9%

1.9%

60,577

62,370

64,079

65,499

2.6%

3.0%

2.7%

2.2%

177,077

183,143

189,290

195,699

202,314

3.4%

3.4%

3.4%

3.4%

75,991

77,324

78,447

79,713

81,012

1.8%

1.5%

1.6%

1.6%

Percent change Business Services Percent change Commercial & Residential Services Percent change Lodging Percent change Personal Services



59,039

Percent change Real Estate Percent change Retail Food Percent change Retail Products & Services Percent change

79,972

82,498 3.2%

84,597 2.5%

86,996 2.8%

89,494 2.9%

Table/Full Service Restaurants

58,354

60,533

62,273

64,308

65,736

3.7%

2.9%

3.3%

2.2%

84,130

86,391

88,384

90,287

Percent change

Total

81,972


Page 24

State Franchise Outlook State Overview A recent study of the economic impact of franchise businesses commissioned by the IFA Franchise Education and Research Foundation included estimates of basic indicators of franchise business activity at the state level.5 Here we present forecasts of the growth of franchise businesses in 2017 by state based on macroeconomic forecasts for states from the IHS Markit US Regional Information Service. These estimates and forecasts, like the national franchise data presented elsewhere in this report, are for business format franchises and do not include product distribution franchises. Franchise businesses are an important part of state economies. The southern and western regions continue to demonstrate the strongest growth rates of output and employment in franchising. These regions also fare the best economically, thanks to surging payrolls growth, strong GDP growth, and above-average population gains. The Pacific (PAC), Mountain (MTN), and South Atlantic (SATL) regions continue to lead in job gains, as demand for housing boosts payrolls in construction, finance, and services. They were joined in the lead this past quarter by the West South Central (WSC), which is benefitting from the same factors. These states continue to be a popular destination for people and employers alike, as both jobs and recreational opportunities help to attract younger people in particular. Those regions' tourism sectors are also thriving. Strength in services has proved to be a prominent economic driver in these regions. In the WSC region, the service sector has helped offset the oil related disruption. Low oil prices have provided stimulus to consumers and, in turn, help sectors closely tied to discretionary spending such as leisure/hospitality and retail trade. In the MTN region, both the professional/business services and education/health services added to payrolls at a 3.1% pace. The leisure and hospitality services sector rose 3.2%.

Top 10 States for Franchise Growth: 2017 Employment Utah Florida Oregon Nevada Washington Arkansas Colorado Georgia

Growth 5.2% 4.4% 4.4% 4.1% 4.0% 3.9% 3.9% 3.9%

Output Utah Florida South Carolina Washington Wisconsin Colorado Delaware North Carolina

Texas 3.7% Kentucky North Carolina 3.7% Maryland IHS Markit Economics August 2017 Outlook

5

Growth 7.6% 7.0% 7.0% 6.7% 6.5% 6.5% 6.5% 6.4% 6.2% 6.1%

https://franchiseeconomy.com/


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State Franchise Activity: August 2017 Outlook 2016 Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

Establishments 2017 Growth

12,228 1,825 14,539 8,194 75,887 15,616 7,244 2,036 890 47,117 26,560 1,861 4,724 28,547 16,516 9,914 9,176 12,678 11,419 2,846 12,838 12,470 23,365 15,182 8,061 16,883 3,758 6,530 6,152 3,081 17,015 4,874 29,090 24,878 2,799 27,175 10,169 9,112 26,657 2,080 12,325 3,311 17,449 62,165 6,511 1,508 22,324 14,486 4,778 14,346 2,108

12,437 1,814 14,821 8,398 76,896 16,000 7,326 2,047 907 48,477 27,202 1,885 4,801 28,664 16,624 10,015 9,162 12,872 11,521 2,866 13,069 12,685 23,767 15,414 8,025 17,217 3,811 6,638 6,317 3,148 17,240 4,940 29,646 25,430 2,797 27,349 10,117 9,375 26,946 2,114 12,485 3,353 17,809 63,569 6,753 1,523 22,655 14,853 4,735 14,483 2,080

1.7% -0.6% 1.9% 2.5% 1.3% 2.5% 1.1% 0.5% 1.9% 2.9% 2.4% 1.3% 1.6% 0.4% 0.7% 1.0% -0.2% 1.5% 0.9% 0.7% 1.8% 1.7% 1.7% 1.5% -0.4% 2.0% 1.4% 1.7% 2.7% 2.2% 1.3% 1.4% 1.9% 2.2% -0.1% 0.6% -0.5% 2.9% 1.1% 1.6% 1.3% 1.3% 2.1% 2.3% 3.7% 1.0% 1.5% 2.5% -0.9% 1.0% -1.3%

2016

Employment 2017 Growth

125,043 14,617 153,476 82,895 729,737 150,573 85,098 22,025 14,016 514,590 276,117 30,835 45,652 321,769 189,217 95,510 89,703 145,867 116,033 27,131 142,964 116,734 247,484 152,675 78,991 178,505 30,735 63,673 73,985 26,931 170,696 54,863 305,250 294,738 31,336 318,866 97,212 82,795 270,711 18,021 130,149 28,232 200,630 636,230 63,373 11,313 238,474 136,657 44,851 149,672 18,322

128,998 14,733 158,686 86,165 749,975 156,475 87,288 22,456 14,487 536,985 286,825 31,684 47,061 327,692 193,170 97,854 90,844 150,214 118,740 27,715 147,614 120,439 255,333 157,222 79,758 184,632 31,613 65,650 77,051 27,909 175,423 56,400 315,522 305,570 31,760 325,487 98,097 86,398 277,545 18,581 133,721 28,996 207,686 659,871 66,668 11,592 245,464 142,116 45,084 153,250 18,301

3.2% 0.8% 3.4% 3.9% 2.8% 3.9% 2.6% 2.0% 3.4% 4.4% 3.9% 2.8% 3.1% 1.8% 2.1% 2.5% 1.3% 3.0% 2.3% 2.2% 3.3% 3.2% 3.2% 3.0% 1.0% 3.4% 2.9% 3.1% 4.1% 3.6% 2.8% 2.8% 3.4% 3.7% 1.4% 2.1% 0.9% 4.4% 2.5% 3.1% 2.7% 2.7% 3.5% 3.7% 5.2% 2.5% 2.9% 4.0% 0.5% 2.4% -0.1%


Page 26

State Franchise Activity: August 2017 Outlook (in millions $) 2016 Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

3,730 636 5,499 2,315 28,838 5,409 4,291 914 1,003 17,903 9,107 1,454 1,217 12,931 5,426 2,729 2,807 4,154 3,780 884 5,665 4,915 7,177 5,202 2,332 5,816 893 2,011 3,147 1,044 7,221 1,625 14,637 10,021 1,237 10,063 3,004 2,887 9,884 716 3,899 768 6,804 21,577 1,995 386 8,591 5,394 1,278 4,420 586

Payroll 2017 3,982 644 5,792 2,482 30,576 5,768 4,447 973 1,023 19,142 9,621 1,516 1,278 13,518 5,740 2,855 2,879 4,428 3,932 931 6,024 5,102 7,569 5,512 2,428 5,966 942 2,131 3,222 1,056 7,484 1,702 15,258 10,643 1,261 10,631 3,059 3,102 10,307 725 4,169 816 7,218 22,790 2,153 394 9,102 5,764 1,322 4,755 593

Growth 6.8% 1.3% 5.3% 7.2% 6.0% 6.6% 3.6% 6.5% 2.0% 6.9% 5.6% 4.3% 5.0% 4.5% 5.8% 4.6% 2.6% 6.6% 4.0% 5.3% 6.3% 3.8% 5.5% 6.0% 4.1% 2.6% 5.5% 6.0% 2.4% 1.1% 3.6% 4.7% 4.2% 6.2% 1.9% 5.6% 1.8% 7.4% 4.3% 1.3% 6.9% 6.3% 6.1% 5.6% 7.9% 2.1% 5.9% 6.9% 3.4% 7.6% 1.2%

2016 9,765 1,489 13,655 6,260 69,531 13,477 9,327 2,277 2,070 44,917 22,768 3,479 3,310 31,903 14,485 7,617 7,237 10,716 9,828 2,347 13,665 12,022 19,510 13,456 6,172 14,827 2,432 5,439 7,456 2,575 18,220 4,318 34,197 24,414 3,391 25,166 7,630 7,227 24,713 1,832 10,251 2,247 16,960 53,174 5,046 1,054 21,112 13,912 3,384 11,885 1,545

Output 2017 10,318 1,512 14,415 6,629 73,301 14,350 9,668 2,424 2,120 48,062 23,962 3,631 3,444 33,311 15,352 7,997 7,469 11,378 10,179 2,443 14,497 12,518 20,672 14,118 6,432 15,476 2,552 5,709 7,811 2,636 18,841 4,511 35,583 25,973 3,476 26,479 7,812 7,655 25,818 1,875 10,966 2,362 17,992 56,186 5,432 1,088 22,322 14,846 3,518 12,656 1,573

Growth 5.7% 1.5% 5.6% 5.9% 5.4% 6.5% 3.7% 6.5% 2.4% 7.0% 5.2% 4.4% 4.0% 4.4% 6.0% 5.0% 3.2% 6.2% 3.6% 4.1% 6.1% 4.1% 6.0% 4.9% 4.2% 4.4% 4.9% 5.0% 4.8% 2.4% 3.4% 4.5% 4.1% 6.4% 2.5% 5.2% 2.4% 5.9% 4.5% 2.3% 7.0% 5.1% 6.1% 5.7% 7.6% 3.2% 5.7% 6.7% 4.0% 6.5% 1.8%


Page 27

APPENDIX

Appendix A: Composition of Franchise Business Lines 1. Automotive: Includes motor-vehicle parts and supply stores, tire dealers, automotive equipment rental and leasing, and automotive repair and maintenance. 2. Commercial & Residential Services: Includes building, developing, and general contracting; heavy construction; special trade contractors; facilities support services; services to buildings and dwellings; and waste management and remediation services. 3. Quick Service Restaurants: Includes limited-service eating places, cafeterias, fast-food restaurants, beverage bars, ice cream parlors, pizza-delivery establishments, carryout sandwich shops, and carryout service shops with on-premises baking of donuts, cookies, and bagels. 4. Table/Full Service Restaurants: Establishments primarily engaged in providing food services to patrons who order and are served while seated (i.e., waiter/waitress services) and pay after eating 5. Retail Food: Includes food and beverage stores; convenience stores; food-service contractors; caterers; retail bakeries; and beer, wine, and liquor stores; as well as gas stations with convenience stores. 6. Lodging: Includes hotels, motels, and other accommodations. 7. Real Estate: Includes lessors of buildings, self-storage units, and other real estate; real estate agents and brokers; and property management and other related activities. 8. Retail Products & Services: Includes furniture and home furnishings stores, electronics and appliance stores, building-material and garden-equipment and supplies dealers, health and personal-care stores, clothing and general merchandise stores, florists and gift stores, consumer-goods rentals, photographic services, and book and music stores. 9. Business Services: Includes printing, business transportation, warehousing and storage, dataprocessing services, insurance agencies and brokerages, office administrative services, employment services, investigation and security services, tax-preparation and payroll services, and heavy equipment leasing. 10. Personal Services: Includes educational services, health care, entertainment and recreation, personal and laundry services, veterinary services, loan brokers, credit intermediation and related activities, and personal transportation.


Page 28

Appendix B: Methodology The statistics in this report were derived from various published sources as well as IHS Economics propriety databases. In January 2017, IHS Markit developed estimates of franchise establishments, employment and output by business line in 2013-2015 tied to benchmark estimates of these indicators for 2016 developed in a study of the economic impact of franchise businesses prepared for the International Franchise Association Franchise Education and Research Foundation by PricewaterhouseCoopers6. That report, completed in mid-2016, provided estimates (projections) of establishments, employment, and annual payroll and output, separately for business format franchises, in 10 Business Format Lines in 2016. To develop corresponding estimates for 2013-2015, IHS Economics estimated econometric models to create forecasts for establishments, employment, and output of each of the 10 business lines. The models include both macroeconomic (credit availability) and industry-specific variables, using a nested modeling approach (i.e., franchise establishment formation affects employment requirements, which further influences output forecasts). Many economic drivers for our forecasts of franchise business activity are drawn from the IHS Economics Business Market Insights (BMI). This is a database that is based on the Census Bureau’s County Business Patterns. It contains information on establishments, employees, and sales at the country level at six-digit North American Industry Classification System (NAICS). When complete data for 2016 were available in mid-2017, IHS Markit made revised estimates for all franchise business indicators in 2016. State Level Forecast

The PricewaterhouseCoopers study also provided 2016 estimates of state level franchise activity. Using these 2016 state levels as a starting point, IHS Markit Economics used our proprietary Business Market Insights database and Regional Information Service forecasts to estimate the growth in franchise activity in 2017. The estimates were further constrained to equal sum to our national level forecasts for 2017. When complete data for 2016 were available in mid-2017, IHS Markit made revised estimates for all state franchise business indicators in 2016 consistent with the revised national data for 2016. Additionally, since our BMI database does not forecast payroll, we use our Regional Information Service estimates and forecasts of wages in the 10 franchise business lines in 2016 and 2017 to estimate and project the growth in payrolls for each state.

6

https://franchiseeconomy.com/


Page 29