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Discover: Small Business Economic Confidence Drops in May

After reaching its highest level in 14 months, the economic confidence among small business owners fell in May as owners reported cash flow concerns and expect to cut back on business development spending, according to the latest Discover Small Business Watch.

The monthly index dropped more than 10 points to 78.1, down from 88.5 in April.

The Watch also recorded significant drops in the numbers of small business owners who think the overall economy is getting better, and number of owners who thought economic conditions were improving for their own businesses.

"We saw cash flow problems jump this month to their highest level in two-and-a-half years, which is certainly not going to boost the optimism of a small business owner, especially in this economic climate," said Ryan Scully, director of Discover's business credit card. "However, for the past three months we've been recording our highest confidence levels since summer of 2008, so all is not lost."

The following are highlights from the May report:

49% of small business owners say they have experienced temporary cash flow issues in the past 90 days, up 10 percentage points from April. That's the highest percentage in that category since the Watch started in August 2006.

Nearly half of small business owners, or 48%, see economic conditions for their businesses getting worse, up from 40% in April; 24% see conditions improving, down from 32% last month; and 23% say conditions are the same; 4% were not sure.

60% of small business operators rate the economy as poor, up from 54% in April. Only 7% rate the economy as excellent or good, and 32% called it fair.

57% believe the economy is getting worse, up from 51% in April, while 23% believe it's getting better, down from 31% in April; 16% say it's staying the same; and 4% weren't sure.

53% of small business owners say they plan to decrease spending on business development over the next six months, an increase over the 46% in April who said the same. Twenty-two percent plan to increase spending, which is largely unchanged from 21% in April; while the number of owners who were not planning any changes in spending dropped from 30% in April to 23% in May.

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.

For past results and survey data, click here.

Tuesday, May 26, 2009

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