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Discover(R) Small Business Watch(SM): Small Business Economic Confidence Drops To New Low; Nearly 8 In 10 Say Economy Is Getting Worse

June 30, 2008

Concerns About the U.S. Economy and Economic Conditions for Small Businesses Hit Record Levels POLL: INDEPENDENCE, FLEXIBILITY ARE TOP MOTIVATORS FOR STARTING A SMALL BUSINESS Most Owners Would Pass Up More Money to Work for Someone Else

RIVERWOODS, Ill., Jun 30, 2008 (BUSINESS WIRE) -- After a brief rebound in May, economic confidence among small business owners dropped to a record low in June as the number of those who think the U.S. economy is getting worse expanded to nearly 80 percent. The Discover(R) Small Business Watch(SM) plummeted in June to 71.8, down 10 points from 81.8 in May.

We know this sector is self-reliant and independent to a large degree, so in spite of their view of the overall economy, they feel less concerned about the economic conditions that affect their own businesses closer to home, said Ryan Scully, director of Discover's business credit card.

Confidence indicators were down in June in every category of the Watch survey, including cash flow issues and plans to spend on business development.

With prices rising, especially gas and food, just about everybody is feeling the squeeze, Scully said. People are starting to change their habits and cut back. For small business owners who are seeing profits go down as a result, that means they have less to invest in finding new business.

June Key Findings:

-- Nearly eight out of 10 small business owners, 79 percent, think the U.S. economy is getting worse - an increase from 71 percent in May and the highest level recorded since the inception of the Watch in August 2006.

-- 53 percent of owners say that economic conditions for their business are getting worse, compared to 47 percent in May.

-- 58 percent rated the economy as poor, an increase from 50 percent in May.

-- 42 percent say they have experienced cash flow issues over the last 90 days, an increase from 39 percent in May.

-- 75 percent of owners will be decreasing or making no changes in what they spend over the next six months on business development activities such as advertising, inventories, and capital expenditures. Forty-five percent plan to decrease spending, 30 percent are making no changes, and 23 percent plan to increase spending.

-- 8 percent of owners have plans to hire in the next few months, while 79 percent are making no changes and 10 percent plan to lay off workers.

American Dream Poll: Is It Still Within Reach?

-- Only 40 percent of the 4,000 consumers polled by the Watch people think the American Dream is still a possibility, 11 percent aren't sure, and 48 percent said the dream is dead. However, if you're going to try, 58 percent of consumers say owning a small business is one way to go, while small business owners are more certain: 71 percent of them feel like they have a doorway to prosperity and a better life for their families.

Motivation Poll: Independence and Flexibility Drive Most Owners

Independence and flexibility continue to be the main reasons behind the choice to start a small business. Fifty-two percent of owners say they started a small business to have more flexibility with their time or to be more independent, an increase from 46 percent in 2007. Only 12 percent cited making more money as the primary reason for starting their own business, a decrease from 19 percent a year ago.

The long hours and risks of running a small business are trade-offs most owners are willing to make for the freedom and flexibility that comes with working for themselves, even if it might mean making less money, Scully said.

Highlights:

-- 59 percent of owners would turn down a job working for someone else, even if offered more money than they currently make. This is down slightly from 61 percent who felt this way in 2007.

-- 66 percent of small business owners agree that it is riskier to run a business than to work for a large company, although 44 percent said that starting their own business turned out to be, in retrospect, less risky than they first believed.

-- When asked about the biggest challenge facing their business, 31 percent cited finding new business and 19 percent cited managing cash flows.

-- Nearly half of small business owners, 46 percent, originally financed their small business with personal savings.

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.discovercard.com/business/watch. For information on Discover Business Card, visit www.discovercard.com/business.

About Discover Financial Services

Discover Financial Services (NYSE: DFS) is a leading credit card issuer and electronic payment services company with one of the most recognized brands in U.S. financial services. The company operates the Discover Card, America's cash rewards pioneer. Since its inception in 1986, the company has become one of the largest card issuers in the United States. Its payments businesses consist of the Discover Network, with millions of merchant and cash access locations, and PULSE, one of the nation's leading ATM/debit networks. For more information, visit www.discoverfinancial.com.

SOURCE: Discover Financial Services

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