Growing concerns about employment and income are having a dampening effect on U.S. consumer sentiment, offsetting optimism likely tied to the passage of the massive tax cuts legislation.

The Conference Board's Consumer Confidence Index decline less than expected in July to 97.4, down from a revised 98.7 (previously 97.2) in July, but above expectations of 96.4 in the Econoday survey of forecasters.

Consumers' assessment of current business and labor market conditions soured, while their short-term outlook for income, business, and labor market conditions remained pessimistic remaining well below the threshold that indicates a recession ahead.

Notably, consumers' appraisal of current job availability declined for the eighth consecutive month, but stronger views of current business conditions mitigated the retreat in the Present Situation Index, the report said. Meanwhile, pessimism about future job availability inched up and optimism about future income faded slightly. However, these were partly offset by stronger expectations for future business conditions.

Tariffs and concerns about higher prices remain top of mind. [R]eferences to tariffs increased somewhat and continued to be associated with concerns about higher prices. Meanwhile, references to high prices and inflation, including food and groceries, rose again in August, the Conference board said.

Average one-year inflation expectations rose to 6.2 percent in August from 5.7 percent in July.

The Conference Board also said the share of consumers expecting a recession over the next 12 months increased in August to the highest level since the April peak.

On a six-month moving average basis, purchasing plans for autos both new and used increased in August. Plans to buy a home were stable following July's decline. Plans to buy big-ticket items were mixed but slightly down overall. Intentions to purchase services in the coming months improved compared to July, but the increases were concentrated in a few, mostly non-discretionary categories such as financial services and car and home maintenance.

The consensus looks for a downtick to 96.4 in August from 97.2 in July. The Conference Board’s measure has stabilized after taking a tumble earlier in the year but confidence remains relatively depressed as consumers fret about the job market.

The Conference Board's confidence report surveys consumers on their assessments of the labor market, business activity, and their own financial conditions. The survey is conducted by Toluna, an online community platform. (Conference Board and Toluna)

The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

This balance was achieved through much of the nineties and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer confidence index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.