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Small Business Economic Confidence Remains Steady

February 26, 2007
Riverwoods, Illinois, February 26, 2007 – Small business owners' confidence in the American economy remained steady in February as rising optimism about their own business fortunes was offset by an increase in cash flow issues, according to surveys conducted for this month's Discover® Small Business WatchSM. At 113.4, the confidence measure was down less than a point from January's 114.3 mark.

“Small business owners are often the first to feel the effects of changes in the larger economy, so we believe they are an important barometer to track,” said Sastry Rachakonda, director of Discover's small business credit card. “Based on our Watch numbers, economic confidence appears to be steady. However, cash flow is something to keep an eye on when it comes to small business indicators.”

February Key Findings:

•Cash flow concerns crept upward across the board, especially among business owners who sell products: 40 percent of those businesses reported a significant jump in cash flow concerns, compared to 24 percent the previous month.
• Businesses are still focusing on growth: On the hiring front, 17 percent of owners plan to hire more workers in February, compared to 14 percent last month; 39 percent also plan to spend more on business development, which is up from 35 percent last month.
•57 percent of small business owners said their operations would be more energy-efficient if the government offered incentives, such as tax breaks; and 52 percent said that the government did not do enough to help small businesses be more energy efficient.

Poll: Gasoline Is a Major Issue for 39% of owners; Most Energy Concerns Are Minor

This month's poll found that changes in gasoline prices affect profitability for 39 percent of respondents, while the remaining owners say the effects are minor (48 percent) or of no consequence (13 percent).

When asked to choose their largest energy expense, 36 percent of small business owners cited gasoline, but an unexpected 42 percent say they have no significant energy expenses. Of the remaining, 13 percent named electricity, followed by fuel oil (6 percent) and natural gas (3 percent).

“Gasoline prices are important to four out of every 10 small business owners, and 52 percent of them expect gas prices to increase in the next three months,” Rachakonda said. “It will be extremely interesting to see how this plays out in terms of small business confidence.”

Among the 4,000 consumers surveyed this month, 66 percent say they expect to be charged more by small businesses when gasoline prices go up. Even more of them, 77 percent, expect large businesses to do the same.

Many consumers seem to support businesses that adopt green energy practices: 42 percent of them say they would pay higher prices for goods and services from such businesses, while 34 percent were unwilling and 25 percent were undecided.

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 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 4,400 financial institutions and includes nearly 260,000 ATMs, as well as POS terminals nationwide. 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.

Media Contacts:

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

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