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

August 28, 2007; 01:19 AM

Economic confidence among small business owners fell in August after briefly rebounding last month as small business owners expressed less confidence in the economic conditions for their business and experienced more cash flow issues, according to the Discover(R) Small Business Watch(SM). At 102.4, the Watch is down nearly five points from July's 107.3 and is nearly level with the Watch's lowest index since its inception, June's 102.5.

"While small business owners' feelings regarding the overall economy remain steady from last month, they are far less optimistic about the economic conditions for their own business, which is likely resulting from the cash flow concerns they are encountering," said Sastry Rachakonda, director of Discover's small business credit card.

August Key Findings:

• 36 percent of small business owners feel that economic conditions for their business are getting better, a significant decrease from 41 percent in July.
  


• 41 percent said that they have experienced cash flow issues in the last 90 days, an increase over last month's 35 percent.
  


• The percentage of business owners spending more on business development in the next six months fell from 38% to 34%

Business Poll: Housing Market Having a Negative Effect on Business

More than one in three small business owners (35 percent) said that recent changes in the housing market have had a significant impact on their business. Twelve percent of the business owners have applied for credit the last three months. However, 35 percent of owners said that if obtaining credit becomes more difficult, it will have an impact on their business.

Rachakonda continued: "Small business owners are clearly feeling the impact of recent shifts in the housing market. If credit becomes harder to secure, it is going to have a significant impact on their businesses."

In response to other questions about their preferences, 69 percent of small business owners also said that they prefer to have their business remain small. Thirty-eight percent of them did not plan to retire. In addition, 18 percent would transfer ownership to a family member.

"These numbers are in line with the Watch last year" Rachakonda said, "and it demonstrates the pride small business owners have in their businesses. Small Business owners value their freedom and their choice to remain small. Never to retire is an expression of their independence."

Consumer Poll: Consumers Modifying Budgets to Address Housing Market Changes

When asked what kind of impact the recent changes in the housing market have had on their personal budgets and financial decisions, more than one in three (34 percent) said the impact was significant.

"Shifts in the housing market are having an affect on consumers' budgets," Rachakonda said. "This is likely to have an impact on small business owners. The silver lining is that our poll found that 42 percent of consumers said they expected the houses in their area to be priced higher six months from now which may help soften the impact on small business owners."

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 POS terminals, nationwide. For more information, visit www.discoverfinancial.com.

SOURCE: Discover Financial Services