U.S. consumer sentiment dropped 1.9 points this week to an overall index reading of 89.7 among adults, driven primarily by a retreat among middle-income households.
Adults earning between $50,000 and $100,000 recorded the largest dip, with their sentiment index falling 4.4 points to 91.1. Lower- and higher-income brackets experienced more modest declines. The drop coincided with elevated energy prices linked to renewed U.S.-Iran tensions in the Strait of Hormuz, resuming cost pressures that have affected sentiment throughout the summer.
Despite the drop in confidence, leading indicators suggest labor market conditions improved ahead of Friday’s official July employment report from the Bureau of Labor Statistics (BLS).
Morning Consult’s unemployment index dropped 3.3 points between the June and July reference weeks to 96.8. Shifts of this magnitude have preceded a stronger BLS report in 8 of the last 11 instances since 2021. Although the index rose to 98.8 by July 25 before settling at 97.4, it remained below June levels throughout the month.
Meanwhile, the Pay Loss Rate remained virtually flat over the same interval. Economists project Friday’s BLS report to reflect a payroll increase of 88,000—up from June’s 57,000 gain—with the national unemployment rate expected to hold steady at 4.2%.
The data arrives as financial markets adjust expectations for Federal Reserve policy. Fed funds futures have increasingly priced in a potential interest rate hike for September as rising oil prices spark inflation concerns.
A stable labor market gives central bank policymakers flexibility to focus on energy-driven inflation without needing to lower rates to support employment, directly impacting borrowing costs and household budgets heading into the fall.
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