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Discover Small Business Index: July Confidence Saw Biggest Drop in 8 Months

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Small business owners’ confidence in the economy soured significantly from July to August in the largest one-month decline since November 2009, according to the Discover Small Business Watch released Monday, August 30.

The Small Business Watch confidence index plummeted to 73 in August from 83 in July, with 62% of small business owners saying the economy is getting worse and a record 55% of small business owners expecting economic conditions for their businesses to be unfavorable in the next six months.

In addition, according to Discover Financial Services’ national random monthly survey, 750 U.S. small business owners with less than five employees expressed a negative outlook for the economy in general and skepticism that conditions would get better for their businesses in the next six months.

“There’s growing concern that the economy is stuck in neutral, or even sliding, and small business owners definitely reflected that sentiment this month,” said Ryan Scully, director of Discover’s business card, in a statement. “With the economy seemingly unable to show sustained growth, and small businesses not expanding to create jobs, it’s no wonder that confidence is down.”

In a phone interview, small-business owner Bernie Kiely, president and chief compliance officer of Kiely Capital Management in Morristown, New Jersey, countered that many of his small-business clients are actually seeing more work come in, matching the modest U.S. economic recovery.

“I think small businesses have let go those people that they’re going to let go,” Kiely said. “In my case, an employee left and I have not replaced her. In 2009, my revenues were down 20% over 2008, and I’ve made back 5% of the 20%, so I’ve made back a quarter.”

The biggest concern, he added, is the slowdown in consumer spending.

“There are a number of uncertainties out there,” Kiely said. “When will consumers start spending again? When will we know what tax rates are going to be? When are we going to know if we have an estate tax? And when are we going to know what the actual effects of Obamacare on small businesses are going to be?”

According to the Discover index, confidence in August was at a record low among small business owners who sell directly to consumers. Those small businesses slid 17.4 points since last month to a record-low 65.5 points on the index, compared to business-to-business operators who marked 79 on the index in August, down only 2.2 points from July.

August marked the third straight monthly decline in the index, which was the lowest it has been in 18 months on the 4-year-old index. Of small business owners surveyed, 53% said they were experiencing cash flow issues, up from 47% in July.

When asked about hiring over the next few months, 72% said they had no plans to add or subtract jobs, while 20% said they were laying off workers and 6% planned to do some hiring. The percentage of small business owners planning layoffs was the lowest in the history of the Watch.

Nearly half, or 48%, of owners said the new financial reform bill will have no significant impact on their businesses; 30% weren’t sure and 22% expect it to have a significant impact. Of those expecting to be affected, 79% said the impact will be somewhat negative or very negative.

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