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Small Business Economic Confidence Drops Sharply In June

June 25, 2007

Fewer Owners Believe Conditions Are Improving; Cash Flow Issues Constant

POLL: FREEDOM AND INDEPENDENCE MOTIVATE MANY TO START THEIR OWN BUSINESSES

Entrepreneurs Trade Risks to Be the Boss and Have More Flexibility

Riverwoods, IL, June 25, 2007 – Economic confidence among small business owners fell sharply in June, as many small business owners expressed increased doubts that economic conditions for their business are improving, according the Discover® Small Business WatchSM. At 102.5, the Watch is down more than seven points from May's 110.0 and marks the lowest level of confidence expressed by small business owners since the survey's August 2006 inception.

“While small business owners are feeling far less optimistic about economic conditions for themselves and in the larger economy, cash flow concerns are unchanged from last month, which is good news for them,” said Sastry Rachakonda, director of Discover's small business credit card. “An interrupted cash flow is hard evidence that things could be getting tougher.”

June Key Findings:

  • 34% of small business owners feel that economic conditions for their business are getting better, a significant decrease from 43% in May.


  • Small business owners who said that they would rate the overall U.S. economy overall as “excellent” or “good” fell to 38% this month, down from 45% in May.


  • 38% of business owners said they will spend less on business development, up from 31% in May.


  • 54% of owners have not had cash flow issues in the past 90 days, nearly unchanged from 53% the previous month.

Poll: Independence Means More Thank Income to Those Who Start a Business

“Starting a small business is about being independent even if it means working harder and taking more risks,” Rachakonda said. “Almost one of every two small business owners says he or she started their own business to have more flexibility or to be their own boss. Only one in five cite making more money as the primary reason for becoming a small business owner. ”

Survey Highlights:

  • 46% of owners started a small business to have more flexibility with their time or to be more independent. Only 19% cite making more money as the primary reason.


  • 61% would still choose independence over working for someone else – even if offered more money than they currently make.


  • 64% of small business owners agree that it is riskier to run a business than to work for a large company.


  • When asked about the biggest challenge facing their business, 28% cite finding new business and 21% cite managing cash flows.


  • Slightly more than half of small business owners (51%) believe that most people can still achieve the American dream, making them more optimistic than the 41% of adults who feel the same.

“This month's poll found that more than a third of adults are interested in starting their own business some day,” Rachakonda said. “In spite of long hours and high risks, the freedom and independence that comes from being the boss keeps the entrepreneurial spirit alive in America.”

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, a business unit of Morgan Stanley (NYSE: MS), 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 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-sale terminals, nationwide. For more information, visit www.discoverfinancial.com, 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.

Media Contacts

Jon Drummond
Discover Financial Services
224-405-1888
jondrummond@discoverfinancial.com

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