Small Business Confidence Plummets: Discover

In August, 62 percent of small business owners said the economy is getting worse and a record 55 percent of small business owners expect economic conditions for their businesses to be unfavorable in the next six months, up 10 percentage points from July. Those indicators led the drop in confidence from 83 on the index in July to 73 in August.

Confidence was at a record low among small business owners who sell directly to consumers. Those small businesses slid 17.4 points since last month to a record-low 65.5 points on the index, compared to business-to-business operators who marked 79 on the index in August, down only 2.2 points from July.

“There’s growing concern that the economy is stuck in neutral, or even sliding, and small business owners definitely reflected that sentiment this month,” said Ryan Scully, director of Discover’s business card. “With the economy seemingly unable to show sustained growth, and small businesses not expanding to create jobs, it’s no wonder that confidence is down.”

August marks the third straight monthly decline in the index, which is the lowest it has been in 18 months on the 4-year-old index. In July, the Watch reported that 75 percent of small business owners expected a second recession to occur before the country sees a full recovery.

Another indicator that dropped to its lowest point ever is that only 17 percent of small business owners said they would increase business development spending in the next six months, down from 28 percent in July; 52 percent said they would decrease spending, up from 45 percent in July; and 29 percent don’t plan any changes.

On the job front, 78 percent of small businesses have no plans to do any hiring. When asked about hiring over the next few months, 72 percent of business owners had no plans to add or subtract jobs, 20 percent said they were laying off workers and 6 percent planned to do some hiring. The percentage of small business owners planning layoffs is the lowest in the history of the Watch.

Other August Confidence Indicators:

• 53 percent of small business owners are experiencing cash flow issues, up from 47 percent in July; 43 percent said they are not; and 4 percent aren’t sure.
• 55 percent of small business owners expect economic conditions for their businesses to get worse in the next six months, while 20 percent expect them to stay the same, and 21 percent think things will get better.
• 62 percent of small business owners rate the current state of the U.S. economy as poor, up from 58 percent, in July; while 28 percent it fair; 6 percent rate it good; and 3 percent rate it excellent.
• 62 percent of small business owners say the economy is getting worse, up from 57 percent last month; 24 percent see it getting better; and 12 percent said it’s staying the same.

FINANCIAL REFORM: Owners Mixed on Impact, Less Access to Financing Expected

When asked whether the new financial reform bill will have any significant impact on their businesses, 48 percent of owners said no; 30 percent weren’t sure and 22 percent expect it to have a significant impact. Of those expecting to be affected, 79 percent said the impact will be somewhat negative or very negative.

Fifty-five percent of small business owners think the reform measures will make it harder to obtain bank financing, while 13 percent believe it will have no impact, 22 percent weren’t sure, and 9 percent expect funding to be easier to obtain.

GREEN INITIATIVES: Going Green Loses Steam

Compared to a year ago, small business owners had less enthusiasm for the future of green initiatives: 15 percent say green initiatives to protect the environment will help their businesses, compared to 20 percent a year earlier; 34 percent say such measures will hurt their businesses, up from 30 percent last year; and 46 percent expect no impact on their businesses, down from 48 percent in 2009.

A majority of small business owners, 71 percent, haven’t employed any green measures that have helped their bottom lines. Of the 20 percent who have, energy conservation had the most impact. Eight percent of respondents answered “not sure.”

Among a list of seven green industries that could help small businesses, owners ranked energy conservation the highest, but many more weren’t sure what might make a difference. When asked “Which green industries could help your business the most?” small business owners ranked the following:

• Energy conservation – 16 percent
• Alternative fuels – 12 percent
• Solar power – 8 percent
• Transportation – 8 percent
• Recycling – 6 percent
• Water conservation – 3 percent
• Wind power – 2 percent
• Not sure – 47 percent

As for the immediate future, 67 percent of small business owners are not planning to institute any green measures in the next six months, 21 percent are making plans, and 12 percent aren’t sure.

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 have 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 750 small business owners. It is commissioned by 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 2006. In addition to generating the index, the Small Business Watch surveys small business owners every month on key issues, and polls 3,000 consumers four times per year to gauge purchasing behavior and attitudes towards small businesses. For past results and survey data, visit www.discovercard.com/business/watch. For information on Discover Business card, visit www.discovercard.com/business.

About Discover
Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company operates the Discover card, America’s cash rewards pioneer, and offers personal and student loans, online savings accounts, certificates of deposit and money market accounts through its Discover Bank subsidiary. Its payment businesses consist of 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 more than 185 countries and territories. For more information, visit www.discoverfinancial.com.