US consumer confidence slips to 89.4 as outlook darkens

US consumer confidence fell to its lowest in seven months as households grew more pessimistic about the labor market and inflation.

US consumer confidence slipped to 89.4 in August, its lowest in seven months, as households turned more pessimistic about the labor market and inflation even as their assessment of current conditions improved.

"Consumers were more pessimistic about business conditions and the labor market over the next six months," Dana Peterson, chief economist at The Conference Board, said.

The expectations index, based on the short-term outlook for income, business and labor conditions, fell 5.8 points to 68.2, while the present situation index rose 6.8 points to 121.2 after three months of decline. The labor market differential — the share of consumers saying jobs are plentiful minus those saying jobs are hard to get — rose to 7.5%, driven by more respondents reporting jobs as plentiful. Consumers' 12-month inflation expectations ticked up to 5.8% from 5.6%.

The softening outlook lands as the Federal Reserve's preferred inflation gauge, the personal consumption expenditures price index, rose 3.7% in June from a year earlier — up from 2.8% before the Iran war began Feb. 28 and 2.5% when President Donald Trump took office. July PCE data is due Wednesday, with the University of Michigan's sentiment reading due Friday.

The Conference Board's index came in below the 90.2 reading economists polled by The Wall Street Journal had expected, matching the downwardly revised July level. The survey, collected Aug. 3-16, showed write-in references to prices in general — and oil and gas specifically — remained elevated, with comments about war, food, trade and jobs all rising.

Gasoline prices above $4 a gallon, kept elevated by the ongoing conflict in Iran, continue to weigh on household budgets. The PCE gauge has climbed from 2.5% at Trump's January inauguration, well above the Fed's 2% target.

The labor market presents a mixed picture. While 27% of consumers said jobs were plentiful in August, up from 24.4% in July, the broader employment backdrop has softened. Employers cut 23,000 jobs in July, and Labor Department revisions erased 103,000 jobs from previously reported May and June payrolls. The unemployment rate fell to 4.1%, but for the wrong reason — thousands of people dropped out of the labor force.

A Political Flashpoint

The persistent inflation frustration carries political weight with midterm elections less than 70 days away. Trump continues to blame high prices on his predecessor, Joe Biden, yet inflation has risen since Trump's inauguration. The last time consumer confidence sat near these levels, in January, the expectations index was also in negative territory — a pattern that historically has preceded softer household spending.

What Comes Next

The July PCE report Wednesday will show whether the inflation cooling seen in June — when the gauge eased to 3.7% from 4.1% in May — continued. If price pressures persist, the Fed faces a harder path to cutting rates, which would keep borrowing costs elevated for consumers and businesses. If inflation cools, the improving present situation could help stabilize confidence, though the souring expectations index suggests households remain wary about the months ahead.

This article is for informational purposes only and does not constitute investment advice.