RIVERWOODS, Ill. -- Discover Financial Services' small business watch survey has found that business confidence dropped sharply from August to September.

According to the survey, which Discover conducts monthly, confidence among small business owners dropped 12.3 points from August to September.

"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."

The survey found 42% of small business owners say they have experienced cash flow issues over the last 90 days, unchanged from August, Discover said. Fifty-one percent believe economic conditions for their businesses are getting worse, up from 44% in August.

The number of small business owners who think the U.S. economy is getting worse rose to 73% from 60% in August; only 7% of small business owners feel the economy is getting better, the lowest rating in the Watch's history, Discover said.