Consumer Confidence Drops to Seven-Month Low as Iran War Fuels Inflation Fears

Quick Facts

The Conference Board Consumer Confidence Index fell 0.8 points to 89.4 in August, a seven-month low.
The Expectations Index dropped to 68.2, well below the 80-point threshold historically linked to recession within 12 months.
Consumers now expect inflation of 5.8% over the next year, up from 5.6% in July, driven largely by war-related fuel price spikes.

American consumer confidence fell for the second straight month in August, dropping to its lowest point since January as the ongoing Iran conflict pushes gasoline above $4 per gallon and erodes household purchasing power.

The Conference Board reported its Consumer Confidence Index fell 0.8 points to 89.4, missing the Reuters economist forecast of 90.2. The index has stayed well below the 100-plus readings common in late 2024 and early 2025.

A Split Report

The August data shows a sharp divide between how consumers feel today versus where they expect to be in six months. The Present Situation Index rose 6.8 points to 121.2, reversing three months of decline. The Expectations Index fell 5.8 points to 68.2.

Any Expectations reading below 80 has historically signaled recession risk within the next year, according to the Conference Board. At 68.2, the index sits well below that line.

“The Expectations Index slipped further into negative territory,” said Dana M. Peterson, Chief Economist at the Conference Board. “Consumers were more pessimistic about business conditions and the labor market over the next six months.”

War Costs and Fuel Prices Drive Pessimism

The 2026 Iran conflict, including the closure of the Strait of Hormuz, has disrupted global oil markets in a way the International Energy Agency described as the largest supply disruption in oil market history. Gas prices above $4 per gallon are now the norm in the U.S.

The average additional fuel cost to American households from war-related price increases reached $600.18 as of Aug. 24, with estimates putting that figure at $652.24 by end of summer. Mark Zandi, Chief Economist at Moody’s, warned that if prices hold, the average household could absorb nearly $2,000 in added costs within a year.

“Unless the war ends soon, financially pressed consumers will have no option but to turn more cautious in their spending, threatening the already soft economy,” Zandi said.

Inflation and Income Anxiety Mount

Consumer prices rose 3.4% year-over-year in July, down slightly from 3.5% in June but far above the 2.4% rate recorded before the Iran conflict. Consumers now expect 12-month inflation of 5.8%, up from 5.6% in July.

Income outlook also softened. Just 17.6% of consumers expect income to rise, down from 19.5% in July. The share expecting income to decline rose to 13.8% from 12.6%.

The University of Michigan’s consumer sentiment index reinforces the picture. It fell to 51 in early August from 55.2 in July, with only 8% of consumers expecting income growth to outpace inflation, down from 18% in December 2024.

Labor Market Signals Hold Steady

Not all the data is negative. The share of consumers describing jobs as plentiful rose to 27.0% from 24.4% in July. Those calling jobs hard to get fell to 19.5% from 21.7%, bringing the labor market differential to its highest point of the year.

What It Means for Retailers

Spending patterns are already shifting. The Conference Board found consumers are still buying at restaurants, ordering takeout, purchasing beauty products, and paying for streaming services. Demand for higher-priced discretionary goods is under pressure.

Oxford Economics has cut its 2026 real consumer spending growth forecast in response to the squeeze from energy costs, commodity prices, and financial uncertainty. Retailers selling non-essential, big-ticket items face the toughest environment, while everyday consumables and lower-cost indulgences retain more demand resilience.

Lydia Boussour, Senior Economist at EY-Parthenon, said full normalization will take time. “Especially when it comes to supply chains, when it comes to energy capacity,” she noted, citing “lingering impacts” of the conflict.

For ecommerce operators, the data points to a consumer who is still spending but is becoming more selective. Value positioning, flexible payment options, and lower-cost product tiers will matter more heading into the fall season.