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ADP Economist Says Franchise Hiring Growth Leads the Pack

Quick service restaurant workerIn September Ahu Yildirmaz, vice president and head of the ADP Research Institute, discussed with Blue MauMau the U.S. economy, private-sector hiring and franchises. America has become a job machine, she said. Moreover, hiring among franchise enterprises had been growing faster than among small and big businesses.

U.S. franchises hired 26,000 more part-time and full-time jobs in September alone according to the ADP National Franchise Report. That is the monthly report produced by the ADP Research Institute that  tracked franchise hiring since May of 2011. In October franchises were up by 24,500 jobs. By comparison the change in U.S. nonfarm private sector employment was an additional 147,000 jobs.

Those are solid gains for the economy.

The ADP Research Institute had tracked private-sector hiring for years. Its franchise research sample is derived from ADP payroll data from 15,000 franchises and franchisors that employ nearly 1 million workers in the United States.

Yildirmaz founded the research institute to leverage the big data that ADP payroll and human capital services has harnessed. The data has helped industries understand critical work environment trends. The economist received a doctorate degree in international economics from City University of New York. She holds a bachelor's degree in economics from Bosphorus University in Istanbul, Turkey.

SNIEGOWSKI: Is America headed for full employment soon?

YILDIRMAZ: Over the past two years America has become a job machine. The U.S. economy has been creating on average 200,000 jobs monthly.

There are many different views on how many jobs need to be created per month in terms of moving down the unemployment rate. A couple of years ago economists were talking about 100,000 per month. Now we are talking about 85,000.

The beauty of these numbers is that they are consistent and sustainable month to month through all major sectors. We had a hiccup mainly in 2015 in terms of energy, manufacturing and the strength of the dollar, which hurt a few export industries.

In general the pace is good.

SNIEGOWSKI: What is regarded as "full employment" and when will the U.S. economy reach it?

YILDIRMAZ: That is a very technical question. The answer depends on whom you ask. But if you think of full employment as between a 3 to 4 percent unemployment rate, then we should be close to that number by early next year if we continue at this speed.

I think what is important is the pace, consistency, where the jobs are coming from, the headwinds we have in the overall labor market, lower oil prices and a strengthened dollar. These are already factored into the run rate, barring no big surprises.

SNIEGOWSKI: For a store owner or franchisee, how much tougher is it going to get to find employees to hire in 2017?

YILDIRMAZ: Whether it is franchises, small businesses or large enterprises, what I hear and what I see is the difficulty of bringing in the right talent and the right person into the store or firm.

Small businesses are doing well. If you look at last year, there were a lot of large firms that were soft in terms of hiring people. The economy did not get a lot of job creation there. Most of the job creation came from small businesses. Big firms were more affected by the lowering of oil prices, the strengthening of the US dollar, China's economic slump, and geopolitical issues. Small businesses were more immune to these global issues. But lower oil prices helped small business owners in lowering their operational costs. Franchises benefitted from that.

SNIEGOWSKI: Despite the low unemployment number reported nationally of 4.9 percent, some people think that the low unemployment rate is unrealistically sanguine. They emphasize that the chronically unemployed should be included in the unemployment figure as well. Do you see a sizable number who have given up coming back into the workforce?

YILDIRMAZ: Yes. That is why I like to focus on job creation rather than the unemployment rate. The unemployment rate depends on whether we use U3 or U6. As for those who have not been actively looking for jobs or who left the labor market [which the U6 rate calculates], they are coming back. We see that the job market is tightening. Another interesting thing that we are seeing is that now employees are switching from part-time to full-time jobs—at lower hourly wages, but with more hours. Workers are receiving more monthly income. That also means that part-timers are now better able to find more full-time jobs with working benefits.

In short, the effective labor market is tightening. This is a definite indicator of the workplace re-absorbing those who left the workforce marketplace.

SNIEGOWSKI: Do you see any dark clouds on the horizon?

YILDIRMAZ: The headwinds remain. The overall job number and trends are healthy. What is missing so far is the rise of wages. We have not seen a substantial wage increase. Economists also know that wages are "sticky" or slow movers.

The tightening job market will impact wage increases. The trends have been healthy. The major risk that impacted the U.S. job market had been lower oil prices and a strong U.S. dollar. That's now behind us.

SNIEGOWSKI: In the past five years of tracking franchise jobs, what is your view on what the ADP job numbers show?

YILDIRMAZ: When I look at the past five years I do not see a big change in terms of how franchises are distributed by industry. It is the same story–half of the employment come from restaurants, followed by 15 percent from auto parts and dealers.

Although the numbers seem small in terms of percentages, if you think in terms of a 130 million or 140 million employment base, the share of franchise jobs in the overall labor market has increased from 6.6 percent in 2011 to 6.9 percent.

So franchise jobs have become almost 7 percent [of all private-sector jobs] in 2016. It may sound small as a percentage, but nonetheless the trend shows that employment from franchises grew faster than the overall employment.

This has been consistent in what we have been seeing in the overall tightening of the labor market.

The economy is doing better.

Small businesses are hiring more. For the last year small businesses have been the engine of job creation.

Franchises are getting their fair share from overall consumer spending–not only in reaping increased consumer spending, but also, think about increased sales of auto parts and dealers. We know that auto sales, I just saw data from Moody's yesterday, have healthy numbers. Real estate is getting better. Jobs follow. Restaurants is number one as a category for adding the most number of jobs. Auto parts and dealerships is number two. It looks like franchises are getting their fair share from an overall increase in employment in those specific sectors.

SNIEGOWSKI: The rate of job hiring by franchise establishments has consistently outpaced small business hiring and non-farm private sector employment. Way down the road, does that mean America one day will look like the movie Demolition Man, in which Sylvester Stallone is brought out of suspended animation to find that in the future all restaurants are branded by the Taco Bell franchise name? Are we heading towards an economy where the majority of businesses and jobs will be from franchises?

YILDIRMAZ: Right. Franchised. The economy needs a little more diversification. (Laughs)

I can tell you, I start my day by buying coffee at a franchise. And then my day continues with franchises.

In my personal experiences as a mother and a working person, I don't go through the day without experiencing some kind of franchise. Even my kids go to Kumon, a franchise. When my kids have the choice of going to an [independent] small business pizzeria near home or a Domino's [franchise] farther away, there's no discussion. My kids love Domino's. 

The public relations and marketing recognition of franchises is probably much higher.

Franchises have been growing faster in their hiring than small businesses. This is not new. This is what we have been seeing. It's part of the trend. I remember when ADP launched the National Franchise Report, we were talking about this. We still have the same story. Franchise growth outpaces small business growth. That's always what we have seen.

Franchises overall are doing better in employment. If you think in terms of headwinds, although small businesses are immune, franchises are even more immune. There are a lot of small businesses offering professional services that may be impacted by a downturn in the general economy that franchises are generally more resilient to. But that is not new news. That's old.

It's a good story.

SNIEGOWSKI: The ADP job numbers sound bullish on America and employment for the foreseeable future.

YILDIRMAZ: The overall labor market is doing very well. We have been adding consistent and healthy numbers from all sectors and regions. Small business is doing well. Franchises continue to take their fair share from this growth, but they also have the benefits of the overall consumer sentiment.

In the U.S. I expect the continuation of these healthy numbers and consumer sentiment for the foreseeable future.

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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.