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Small Businesses’ Optimism On Economy Up Sharply

October 30, 2006
Riverwoods, Illinois, October 30, 2006 – The Discover® Small Business WatchSM rose sharply in October 2006 as business owners reported improvements in cash flow and greater willingness to invest in business development. The Watch, based on surveys with 1,000 small business owners, rose to 120 from 107.7 in September.

Among those factors driving the improvement in October:
  • Forty-four percent of small business owners rated the economy as “excellent” or “good” while only 22 percent rated it as poor.


  • Only 34 percent of small business owners said they experienced temporary cash flow issues over the past 90 days, down from 39 percent in both September and August. Similarly, 61 percent reported no cash flow issues, up from 58 and 59 percent in the first two months of the survey, respectively.


  • More small businesses (33 percent v. 30 percent last month) indicated they will increase spending on business development activities, and fewer (32 percent v. 38 percent last month) said they would decrease investment spending.
“The small business economy continues to sustain its upward momentum,” said Sastry Rachakonda, Director, Discover Business Card. “There appears to be a significant correlation between rising business confidence, falling energy costs and a record-breaking stock market, among other indicators. This may be a reason we are also seeing less cash flow issues as well.”

Scott Rasmussen, President of Rasmussen Reports, the independent research firm that conducts the Discover Small Business Watch, observed: “The significant increase in this month's index is consistent with the rise in consumer and business confidence reflected in other economic indicators over the past sixty days, most of which have been rising strongly.”

Spotlight on Immigration: Small business owners embrace legal immigrants and their contributions to the economy, but one in three feels illegal immigrants reduce their income:
  • Among small business owners, 76 percent felt that legal immigrants help the economy and 75 percent of them felt that legal immigrants make a positive contribution to the economy.


  • However some of the small businesses (30 percent) feel that immigrants working illegally in the U.S. reduce their business income. This view is strong among the smallest business owners in this category – defined as those with revenues of less than $40,000 a year or who have been in business a year or less – where the number jumps to nearly 50 percent.


  • Only 19 percent of the small businesses feel that changes in immigration law would have any impact – positive or negative – on their business.
Consumers also strongly support legal immigration, and are ready to put their money where their mouth is when it comes to immigration policy:
  • Sixty nine percent said that legal immigrants made a positive contribution to the society.


  • Sixty percent said they are happy to pay higher prices to businesses that hire only legal immigrants and U.S. citizens.


  • Fifty three percent would shop elsewhere if they learned that a business had illegal workers on the payroll.
Rachakonda continued: “The Discover Small Business Watch really underlines our commitment to our customers – the main street business owners of America. Clearly, there are issues outside the control of small business owners that put pressure on their earnings. We are committed to finding solutions that can help them get more control and flexibility around their finances and help them manage their expenses and spending better.”

About the Small Business Watch:

The Discover Small Business Watch is a monthly index measuring the relative economic confidence of U.S. small business owners who employ less than five employees, a segment that consists of 22 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 addition to generating the index, the Small Business Watch surveys small business viewpoints on key business drivers, and 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.

The views and opinions expressed by small business owners and consumers who participate in the Small Business Watch survey are their own and do not necessarily reflect those of Discover Financial Services or its affiliates.

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Media Contacts:

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

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