Economic confidence among U.S. small business owners fell in August as a slowing housing market soured sentiment, and 41 percent said they had recent cash flow troubles, according to a survey released on Monday.

The Discover Small Business Watch, a monthly poll that tracks business owners' sense of the economy, cash flow positions and spending intentions, fell to the lowest since its inception one year ago.

The survey of 1,000 small business owners, defined as those who employ fewer than five employees, found 36 percent felt economic conditions for their business were getting better, a sharp decline from July's reading of 41 percent.

Some 38 percent of the small business owners polled said they would rate the overall U.S. economy as excellent or good, down slightly from the prior month's 39 percent.

As investors try to gauge whether the U.S. Federal Reserve will lower the benchmark interest rate after weeks of financial market unrest, the underlying health of the U.S. economy is under even more intense scrutiny than usual.

Recent government data show that the economy was on fairly solid footing heading into the latest bout of market gyrations, which began in earnest on Aug. 9, but many economists worry that a slowing housing market and tightening credit terms will restrain growth.

Most major U.S. corporations have strong balance sheets with a large amount of cash on hand, but a growing number of small business owners -- many of whom rely on home equity as a key source of financing -- are starting to feel strapped.

About 41 percent said they had experienced cash flow problems in the last 90 days, up from 35 percent in July's survey.

Cash flow is the life blood of a small business, said Sastry Rachakonda, director of Discover's business credit card division. I place a lot of importance on that question.

One in three of those surveyed said the housing downturn had a significant impact on their business, and of those, 70 percent said it was a negative impact.

U.S.