Confidence Falls Sharply as 3 out of 4 Owners See National Economy Getting Worse

September 2008

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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^® 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.”

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

September Highlights

• 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 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.