Sentiments Follow Broader Market Conditions, But Cash Flow Issues Improve

April 2008

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Small business economic confidence continues to slide, marked by another drop in the number of owners who say that economic conditions for their business are getting better. In April, 24 percent of owners said things were looking up, down from 45 percent at this time last year and hitting the lowest reading since the survey began in August 2006. Overall, the Watch declined to 76.1 in April, down from 77.8 in March.
 
"Small business owners are clearly cautious about the economy and demonstrating resiliency," said Sastry Rachakonda, director of Discover’s business credit card. "While their sentiments may be influenced by broader market conditions, their business cash flow situation has improved over the last month."

The numbers of owners who say economic conditions for their businesses are getting worse has slipped considerably. A year ago, less than a third described conditions as worsening, but in April nearly one out of every two business owners said they believe the situation is getting worse.

Learn more about the research methodology for the Small Business Watch.

April Key Findings

• 55 percent rate the U.S. economy as “poor” compared to 53 percent who said the same in March.  The combined percentage of small business owners who rate the U.S. economy as "excellent" or "good" remained unchanged this month at 16 percent.
• 44 percent say they have experienced cash flow issues over the last 90 days, a slight decrease from 47 percent in March.
  
• Only 27 percent of owners say they plan to increase spending on business development in April, while 44 percent plan to decrease spending. Both of these data points are the lowest results for this question since the Watch’s inception 20 months ago

Poll: High Gas Prices Are Hurting Profitability for Overwhelming Majority of Small Business Owners

• 56 percent of small business owners say that the performance of the stock market rarely or never influences their business investment decisions, while 52 percent said that the stock market does not reflect the daily economic reality they see around them.
• 58 percent of consumers polled said that the small businesses they patronize charge more for their services when gasoline prices rise. 
  
• 39 percent of consumers said that they would be willing to pay higher prices for goods and services from small business that use “green” energy practices.
• 63 percent of consumers think that it not very likely or not likely at all that the economy will improve in the next six months.
  
  "Rising gas prices hurt small business owners because gasoline costs comprise a bigger portion of their expenses compared to larger companies," Rachakonda said. "Because gas is more a part of operating costs than materials, it is not an easy pass-through expense for people like contractors, landscapers and others who do a lot of driving."
  
  Another area of concern for small business operators is the ability of their customers to pay on time. In September 2007, a Watch survey found that of the 30 percent of small business owners who extend credit to their customers, 64 percent received delayed payments or requests to delay payments. In April, about the same number of business owners were extending credit to customers, 32 percent, but the number of owners who received delayed payments and requests for extensions was up to 73 percent.

The Discover Small Business Watch is a monthly index of the economic confidence of the nation's 22 million businesses with 5 or fewer employees. Learn about our research methodology.