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Discover(R) Small Business Watch(SM): Small Business Economic Confidence Falls Sharply

September 29, 2008
3 out of 4 Small Business Owners Expect More National Economic Decline ELECTION POLL: WHICH PARTY BEST REPRESENTS SMALL BUSINESS? Owners Share Party Preferences and Expectations for Next President

RIVERWOODS, Ill.--(BUSINESS WIRE)--

Economic confidence among small business owners declined sharply in September amid rising concerns about economic conditions for their businesses and a bleak vision of where the economy is headed. The Discover(R) Small Business Watch(SM) fell to 74.6 in September, down 12.3 points from August.

"Even though we had two months of rising confidence, this month's drop isn't surprising given the constant stream of uninspiring news about the housing and lending markets, as well as the turmoil on Wall Street," said Ryan Scully, director of Discover's business credit card. "But when you look closer at the numbers, cash flow issues are steady and there is little change in their intentions for business development spending."

"The real mover of this month's confidence level is the overall sense that the economy is getting worse," Scully said. "That number dropped 13 percentage points, and the number of those who think the economy is getting better hit an all-time low of only 7 percent."

September Key Findings:

  • 42 percent of small business owners say they have experienced cash flow issues over the last 90 days, unchanged from August.


  • 51 percent believe economic conditions for their businesses are getting worse, up from 44 percent in August.


  • The number of small business owners who think the U.S. economy is getting worse rose to 73 percent from 60 percent in August; only 7 percent of small business owners feel the economy is getting better, the lowest rating in the Watch's history.


  • 57 percent rate the economy as poor, up from 51 percent in August; 32 percent rated it fair, 10 percent rated it good and 1 percent rated it excellent.


  • 28 percent plan to increase spending on business development over the next six months, which is unchanged from August; 44 percent plan to decrease spending and 26 percent anticipate making no changes.

Most Owners Holding Off On Borrowing, Taking Home Less Money

Sixty-seven percent of small business owners say that despite the current economic climate, they have not been forced to borrow money to pay bills for their business. In addition, 73 percent say gas process are having a negative effect on their profitability.

"The current economy has been picking their pockets to some degree, but the good news is that less than a third of small business owners have attempted to borrow money, either from a bank, or family and friends. Instead, 72 percent of them have resorted to taking home less money from the business - which is sharply higher than it was seven months ago."

For those who are seeking loans, 72 percent say it is harder to borrow money right now.

"The fact that small business owners are not borrowing during these times hints at their independence - from Wall Street and other economic factors - as well as their flexibility in finding ways to keep their businesses going," Scully said.

Election Poll: Economy Continues to Outpace All Other Issues

The economy remains the biggest election issue for small business owners, by far outpacing every other major campaign issue combined.

In September, 52 percent of small business owners said that the economy is the top issue in this election, up significantly from 35 percent in January; national security and the war in Iraq each garnered 10 percent this month; followed by government ethics and corruption, 8 percent; immigration, 8 percent; and healthcare, 4 percent.

"When it comes to this election, it's clear that the state of the economy is the biggest issue, but owners are pretty divided over which party is best equipped to help them, and whether they expect any help at all," Scully said.

When it comes to getting help from the next president, small business owners are split: 45 percent said they were very confident or somewhat confident that the next president will improve operating conditions for small business owners, and 44 percent were either not very confident or not at all confident in the next administration.

As for which party best represents their interests, 43 percent said Republicans, 40 percent said Democrats; 5 percent think some other party has the answers and 12 percent were not sure.

The last time small business owners were asked the same question in October 2006, 41 percent said Republicans and 33 percent said Democrats.

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; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in 185 countries and territories. For more information, visit www.discoverfinancial.com.

Source: Discover Financial Services