Small business owners' confidence in economy falls sharply

By Seamus McAfee

Small business owners' economic confidence plummeted in May, just a month after reaching its highest level in more than a year, according a new report.

Discover Small Business Watch's monthly index dropped more than 10 points to 78.1, down from 88.5 in April, according to a May 26 press release.  That April number was the highest in 14 months.

The Discover Small Business Watch is a monthly study, begun in October 2006, that measures the confidence of business owners with less than five employees. Results are drawn from a national random survey of 750 small business owners and conducted by the research firm Rasmussen Reports, LLC.

Discover attributed the sudden decrease to small business owners reporting concerns over cash flow and expectations that they would have to cut back on business development spending.  "We saw cash flow problems jump this month to their highest level in 2½ 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. Discover also said that fewer small business owners think the economy is improving overall or for their own businesses.

In The Watch, Discover reported that among small business owners:

• 49 percent said they had temporary cash flow issues in the 90 days before the study, up 10 percentage points from April
• 48 percent saw conditions for their businesses worsening, up 8 percentage points from April
• 60 percent rated the economy as poor;,up 6 percentage points from April
• 57 percent believe the economy overall is worsening, up 6 percentage points from April
• 53 percent planned to decrease spending on business development in the next six months, up from 46 percent in April

Small business owners are also working more, with 39 percent reporting they work more than 10 hours a day, up from 30 percent in 2008. By comparison, 22 percent of workers in the general population say they work more than five days a week.

Regarding their heavy work schedules, the Watch also reported that among small business owners:

• 29 percent said they had taken a vacation in the past year lasting a week, down 11 percentage points from 2008
• 57 percent said they work on holidays, up 10 percentage points from 2008
• 69 percent defined a "day off" from work as involving some actual work
• 56 percent said the economy caused them to postpone or cancel vacation time

Despite the drain in confidence and leisure time, Scully said there is hope that conditions for small business owners could improve. "...For the past three months, we've been recording our highest confidence levels since summer of 2008, so all is not lost," he said.

Published: June 4, 2009