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Small Business Owners Rate Economy Strong But See Worsening Business Conditions Ahead

August 28, 2006
Riverwoods, Illinois, August 28, 2006 – Discover Business Card released the results of the inaugural Discover® Small Business WatchSM today, a new monthly Index of economic confidence of the nation's 22 million small businesses with five or fewer employees.

Among the key findings, the survey found that small business owners are more optimistic about the current state of the economy when compared to the general population, with 39 percent of small business owners rating the economy as ‘excellent' or ‘good,' versus the 34 percent for the general population. However, nearly 60 percent of small business owners surveyed felt that economic conditions in the country are getting worse.

The Discover Small Business Watch will measure the relative economic confidence of U.S. small businesses each month with a numerical Index, generated by assessing small business owners' responses to a set of six identical questions. The Discover Small Business Watch for August 2006 represents a baseline of 100, against which future surveys will be compared. Surveys conducted in tandem with each month's Watch will also examine small business viewpoints as well as consumer purchasing behavior and attitudes towards small businesses.

“By providing a reliable barometer of economic confidence among small businesses with five or fewer employees, the Discover Small Business Watch seeks to give a voice to this frequently-overlooked but critical sector of today's economy. This rarely surveyed segment produces more than a trillion dollars in annual revenues,” said Sastry Rachakonda, Director, Discover Business Card. “We believe small businesses are often the earliest to foretell future economic trends, so the Watch is expected to serve as an important economic indicator for not just this segment but of the U.S. economy overall.”

Small Business Owners Committed to Remaining Small and “Will Never Retire”

In addition to measuring economic confidence, the Discover Small Business Watch is designed to provide insights into what drives small business owners and into the contrast between the operations and techniques of small companies versus large businesses. Some of the key survey findings this month include:
  • Small Businesses Want To Remain Small: Nearly two-thirds, or 67 percent, of small business owners said they would rather have their company remain small than have it grow into a big business.
  • Priorities about Retirement and Business Succession Vary: Almost half of small business owners (42 percent) said they have no current plans to retire, while close to a quarter (22 percent) indicated that they plan to close their business upon retirement rather than sell it or hire a manager. Sixteen percent plan to transfer ownership to a family member.
  • Cash Flow an Issue: Nearly 40 percent of small business owners surveyed indicated that their business encountered temporary cash flow issues over the past 90 days causing them to hold off on paying certain bills.
Rachakonda continued: “This is clearly a unique segment with a distinct mindset. The Discover Small Business Watch is an important part of Discover's efforts to understand and serve America's small business owners. The small business payments and financing space has been underserved for years and the Watch is a part of our commitment to meet the unique needs of this segment and to innovate and transform the way small businesses pay for and finance their everyday purchases.”

Consumers See Small Businesses as Leaders in Customer Service and Quality; Engine of Economic Growth

In addition to polls of small business owners, Discover will poll U.S. consumers each month to gauge the role small businesses play in their daily lives. The findings from the August survey suggest that consumers see small businesses as a vital and ubiquitous component of the U.S. economy.
  • Leaders in Customer Care and Quality: Sixty seven percent of consumers surveyed noted that those who are self-employed or own their own business typically provide better customer service than large companies. Seventy percent of consumers surveyed said they were very satisfied with the quality of the product or services they purchased from small businesses.
  • Driving Today's Economy: Nearly six in 10 consumers have purchased a product or used a household or personal service provided by a small business in the past three months. A similar 60 percent indicated that they have close friends or relatives who are self-employed or who own a small business. Fifty nine percent revealed that the company they work for has purchased services or products from free-lance workers or small businesses.
About the Small Business Watch:

The Discover Small Business Watch is an index that measures the relative of economic confidence of U.S. small business owners who employ less than five employees, a segment that consists of 23 million businesses producing more than a trillion dollars in annual receipts. The Watch is based on a national random survey of 1,000 small business owners conducted by Rasmussen Reports, LLC (www.rasmussenreports.com), an independent survey research firm. The numeric index is calculated by assigning values to responses to a set of six consistent questions. The base value of the Watch was established at 100.0 based on surveys conducted in August of 2006. In tandem with each month's Watch, Rasmussen also surveys 4,000 consumers to gauge purchasing behavior and attitudes towards small businesses.

About Discover Financial Services LLC

Discover Financial Services LLC, a business unit of Morgan Stanley (NYSE: MS), operates the Discover Card with more than 50 million Cardmembers, and the Discover Network with more than 4 million merchant and cash access locations. Discover Financial Services also operates the PULSE ATM/debit network, which serves over 4,200 financial institutions and includes almost 250,000 ATMs and approximately 3.4 million POS terminals. For more information, visit www.discovercard.com, www.discovernetwork.com or www.pulse-eft.com.

Media Contact:

Laura Gingiss
Discover Financial Services
224-405-0185
lauragingiss@discoverfinancial.com

Daniel Delson
Robinson Lerer & Montgomery
646-805-2036
dmd@rlmnet.com