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Discover(R) Small Business Watch(SM): Small Business Economic Confidence Continues To Fall

October 29, 2007

Owners Less Confident About Their Own Businesses and Overall U.S.
Economy, But Cash Flow Situations Improve

POLL: Small Business Owners Overwhelmingly Prefer Face-to-Face
Networking to Popular Online Social and Business Options

RIVERWOODS, Ill.--(BUSINESS WIRE)--Oct. 29, 2007--Economic confidence among small business owners continued to fall in October as many expressed increased pessimism about both the future of their own businesses and the U.S. economy in general, according to the Discover(R) Small Business Watch(SM), a monthly survey of 1,000 small businesses with five or fewer employees.

At 96.8, the Watch dropped more than two points from 99.2 in September and has been on a downward trend since July when it was 107.3. The percentage of business owners who said conditions for their own operations were getting worse, 41 percent, represents the highest degree of skepticism recorded thus far noted in the 15-month-old survey.

One bright side in the findings: Fewer owners were having temporary cash flow issues, 42 percent, compared to 46 percent in September.

"Optimism among business owners is definitely clouded, and they are exercising increased caution toward business development spending. However, the upturn in the cash flow situation is definitely a positive sign," said Sastry Rachakonda, director of Discover's business credit card. "If money is still coming in, there is still a sense of stability out there."

October Key Findings:

  • 35 percent of small business owners feel that economic conditions for their businesses are getting better, a decrease from the 40 percent in September and two percentage points lower than a year ago in October. Those who saw their conditions getting worse was 41 percent compared to 35 percent in 2006.


  • 32 percent of owners said that they rate the overall U.S. economy as excellent or good, down from last month's 39 percent and the lowest rating in this category since the Watch's inception. In October 2006, 44 percent of owners rated the economy excellent or good.


  • 42 percent said they had experienced cash flow issues over the last 90 days, a decrease from 46 percent in September, but higher than 34 percent from a year ago.

Poll: Small Business Owners Strongly Prefer Face-to-Face Contact to Online Networking

When asked which networking opportunities they use most, 67 percent identified non-online methods such as trade shows, local in-person groups or chambers of commerce. Six percent cited e-mail as their most-used method and another 6 percent cited online sites. As for financial benefits, 72 percent of small business owners say online networking has yet to have any impact on their bottom lines.

As for consumer response, more than half, 55 percent, said they would not consider using a service or small business that they heard about on a social or business networking Web site.

"Many small business owners reported little use of online networking; instead opting for face-to-face contact at local or industry events," Rachakonda said. "The buzz that general-interest networking sites are generating hasn't struck a chord with the Main Street small business crowd."

Highest Online Usage and Effectiveness Tied to Industry-Specific Sites

Industry-specific online communities had more small business owners as members than some of the more popular social networking sites. Nineteen percent of owners said they were a member of an online community that was specific to their industry, which was higher than their reported participation at some of the more popular general-interest sites, which attracted from 3 percent to 18 percent of small business owners.

Industry-specific online networks also were reported to be more useful than even offline business networking vehicles. When asked how being a member of an industry-specific online community has most helped their businesses, 36 percent of small business owners cited new business leads and 37 percent chose getting useful business tips.

In comparison, when asked to choose the biggest networking benefit of belonging to an in-person local business group, 21 percent reported getting new business leads and 16 percent reported getting useful business tips.

"Clearly, sites with a specific purpose or serving a targeted industry are a lot more useful to business owners than general networking sites" Rachakonda said.

Online Networking Varies by Age Group

While in-person networking is clearly more prevalent overall, not surprisingly, the Watch found that younger business owners use online networking the most. In the 18-29 age group, membership at general online networking sites reached as high as 41 percent at some of the more popular online networking communities. Membership among older age groups at the same sites is still significantly lower.

"While online forums have not completely caught on with business owners yet, the younger business owners are using them a lot more. This is likely to be the wave of the future," Rachakonda said.

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.

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. It is commissioned by the Discover Business Card, which strives to offer the best business credit card for American small businesses, and is 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. For past results and small business survey data, visit www.discoverbiz.com/watch. For information on Discover Business Card, visit www.discoverbiz.com.

About Discover Financial Services

Discover Financial Services (NYSE:DFS) operates the Discover Card with more than 50 million cardmembers, the Discover Network with millions of merchant and cash access locations, and the Goldfish credit card business in the United Kingdom. Discover Financial Services also operates the PULSE ATM/debit network, which serves more than 4,400 financial institutions and includes nearly 260,000 ATMs, as well as point-of-service terminals, nationwide. For more information, visit www.discoverfinancial.com.

CONTACT: Discover Financial Services
Jon Drummond
224-405-1888
jondrummond@discover.com
or
Robinson Lerer & Montgomery
Daniel Delson
646-805-2036
dmd@rlmnet.com

SOURCE: Discover Financial Services