Discover (R) Small Business Watch (SM)

45% of Owners Whose Profitability Suffered in Downturn Don't Expect Sustained Recovery for Another Year; Two-Thirds of All Owners Likely to Tap Personal Assets

GAS PRICES: 76% Say Rising Fuel Prices Affect Profitability

If the overall economy is improving in 2011, small business owners aren't feeling it. Their outlook on the direction of the economy and the climate for their particular businesses has been in decline since January, and more than half of them have rated the economy as poor for 19 consecutive months, according to the March Discover(R) Small Business Watch(SM). The monthly barometer of economic confidence dropped to 86.5 in March, down from 90.2 in February.

"Our surveys have shown that the economic events of the recent past have hit small businesses hard, and many are still struggling to sustain an individual recovery of their own," said Ryan Scully, director of Discover's business credit card. "Nearly a third of small business owners told us they have contemplated going out of business sometime during the past two months, which is up from spring of 2008."

March Confidence Indicators

-- 54 percent of small business owners said the U.S. economy is getting worse, up from 41 percent in February and the highest since September 2010; 27 percent of small business owners said conditions are improving, down from 34 percent; and 15 percent said conditions are the same, down from 20 percent in February.

-- Small business owners' outlook for their own businesses over the next six months also declined: 42 percent say conditions are getting worse, up from 40 percent in February; 30 percent say conditions are getting better, down from 33 percent; and 24 percent say conditions are the same, down from 25 percent.

-- 56 percent rate the current U.S. economy as poor, equal to February; 35 percent rate it fair, up from 32 percent; 6 percent rate it good, down from 7 percent; and 3 percent rate it excellent, unchanged from the prior month.

-- On the upside, fewer small business owners report temporary cash flow issues. Over the past 90 days, 52 percent of small business owners reported no temporary cash flow issues that affected their ability to pay bills on time, up from 46 percent in February; 43 percent of small business owners reported having cash flow issues, down from 50 percent.

-- 29 percent of small business owners plan to increase spending on business development in the next six month, up from 28 percent in February; 40 percent will decrease spending, down from 41 percent last month; and 27 percent say they will make no changes, down from 30 percent last month.

Profitability Hurt by Downturn, 14% May Never Recover

Seventy-seven percent of small business owners said their profitability was hurt by the economic climate of the past three years, and only 22 percent of that group has experienced a sustained recovery, while 57 percent have not, and 21 percent aren't sure.

Among those who have not experienced a comeback for their businesses, 14 percent said they may never recover, 45 percent expect it to take more than a year, 16 percent say they will recover in six to 12 months, 10 percent predict three to six months and 7 percent are expecting a sustained recovery in the next three months. Only 1 percent said they are already experiencing recovery.

Two-thirds of small business owners, 66 percent, say it is very likely or somewhat likely that they will have to use personal assets in the next 12 months to stay in business, up from 61 percent who reported the same in October 2009.

The number of small business owners who extend credit to their customers has dropped: 27 percent said they extend credit, compared to 32 percent who extended credit in April 2008.

The news in March is slightly better for small business owners who extend credit: While 63 percent of small business owners now say customers have asked to delay a payment in the past three months, that number was up to 73 percent in April 2008.

Small Business Owners Feel Squeeze from Gas Prices

Seventy-six percent of small business owners say rising gasoline prices are affecting the profitability of their businesses. Of those, 90 percent say prices are having either a somewhat negative or very negative impact, which is on par with their sentiments in April 2008, when government statistics show that the national average for gasoline hovered near $3.42 per gallon.

See the full survey at www.discovercard.com/business/watch.

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 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 five 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.