Small Business Economic Confidence Rebounds After Record-Low

July 2008

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After sinking to its lowest level in June, economic confidence among small business owners rebounded in July, as the number of those who said they are experiencing cash flow issues decreased significantly and general economic confidence began trending upward.  The Discover^® Small Business Watch^SM jumped in July to 84.6, up 12.8 points from 71.8 in June.

"Based on the results we’ve seen over the past six months, cash flow is one of the key indicators that affects small business owners’ confidence in the economy," said Ryan Scully, director of Discover’s business credit card. "Given the substantial decrease in cash flow concerns that were reported this month, it’s not surprising that economic confidence also rebounded with a double-digit increase."

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

July Highlights

• 33 percent say they have experienced cash flow issues over the last 90 days, a significant decrease from 42 percent in June.
• 17 percent of small business owners think the U.S. economy is getting better, an increase from nine percent in June.
• 28 percent of owners say that economic conditions for their business are getting better, an increase from 23 percent in June.
• 17 percent rated the economy as good or excellent, an increase from 12 percent in June. 
• 29 percent of owners will be increasing spending over the next six months on business development activities such as advertising, inventories and capital expenditures, up from 23 percent in June.  Thirty-nine percent plan to decrease spending.

Poll: Some Owners Feeling Effects of Housing and Credit Market Turbulence

• Approximately four-in-ten small business owners (42%) say that the nationwide downturn in the housing market has had a negative impact on their business, while 47 percent say it has not negatively affected them.  
  
• The Watch also regularly tracks trends in how small businesses are using credit with their customers and the rate of delinquencies they are seeing.  This month, 27 percent of owners said they extend credit to their customers and 70 percent of this group indicated that their customers have delayed a payment or asked to delay a payment in the past three months.  Slightly more small business owners – 32 percent – were extending credit to customers in April 2008; however delayed payments and requests for extensions that month were higher, at 73 percent.  In September 2007, 30 percent of small business owners were extending credit to their customers and 64 percent received delayed payments or requests to delay payments.

  “As shifts in the housing and credit markets continue to impact consumers' spending habits, small business commerce will likely experience a slowdown as a result,” said Scully.  "The good news is that even though small business owners are seeing customers delaying their credit payments, it doesn't appear to be having a negative impact on their cash flow."

Additional highlights:

• 43 percent of owners say that if obtaining credit becomes more difficult, it will have a negative impact on their business.  This is significantly higher from the 35 percent who said the same in August 2007.
• 14 percent of small business owners have applied for a loan or line of credit in that past three months.
• 72 percent of owners say that the government’s economic stimulus efforts have not had any impact on the profitability of their business.
• 54 percent of consumers say that now is a good time to buy real estate.

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.