February employment numbers are in, and they may indicate a rise in consumer spending. Employment growth in key segments, including restaurants and accommodations, could mean good news for the economy overall, according to the ADP National Franchise Report. The report represents 15,000 franchisors and franchisees, which employ nearly 1 million U.S. workers. The report indicates that 18,500 of the 214,000 jobs added in the U.S. labor force in February 2016 were in the franchise sector.
A year-over-year U.S. franchise employment growth rate of 4.2 percent is nearly twice that of employers classified as small businesses, according to the report. In particular, employment growth rates in restaurant franchises added to a yearlong growth trend last month. This is notable because this segment indicates a potential rise in consumer spending.
Restaurants Fuel Growth
As early as September of last year, Nation's Restaurant News was pointing to a consistent growth trend for restaurant franchises, noting that it represents an outstanding opportunity for entrepreneurs and restaurateurs who want to find a profitable niche. Restaurant and food service trend analysts at Nation's Restaurant News highlight factors for franchise success: the "unprecedented amount of financing available" because of the industry's relatively low risk for investors, and the sheer number of restaurant franchises up for sale.
The employment growth trend in the restaurant franchise segment is not expected to abate this year. The National Restaurant Association projects restaurant industry sales overall will reach $783 billion in 2016, marking the seventh consecutive year of industry growth. This represents a workforce of 14.4 million workers, or about 1 in 10 working Americans. The association also predicts the restaurants will add 1.7 million more jobs by 2026.
The accommodations sector added 1,900 jobs over the course of the month. Although overall franchise job growth was slightly down from January's numbers, "accommodations rebounded into positive territory, replacing most of the jobs lost in that sector last month," according to Ahu Yildirmaz, Vice President and Head of the ADP Research Institute. Entrepreneur lists no less than 26 hotel and motel franchises on its Franchise 500 list.
Like the restaurant industry, the accommodation franchise industry's 2016 outlook is strong. The International Franchise Association predicts the industry "will remain the fastest-growing business line based on output" and should show similar employment growth to that of last year.
No End in Sight
Continued industry and employment growth trends represent both opportunities and challenges for franchisees. Franchisors will grow more quickly due to increased capital from both banks and private lenders and the potential to buy or add new franchise business locations. This will also attract new franchise entrepreneurs into the market. On the other hand, increased demand for workers may result in increased competition to attract and retain the best candidates, motivating franchise employers to adjust compensation packages accordingly.
Should consumer activity align with these projections for growth in the franchise restaurant and accommodations segments, franchise owners who are prepared with a plan for development that includes a sound hiring, marketing and expansion strategy could find themselves well-positioned to capitalize on emerging opportunities.