Concerns are mounting over the state of the US jobs market
The Conference Board said its gauge of consumer sentiment fell to 103.2 from a revised 106.2 in June. Analysts had forecast a reading of 106.
The board said morale slipped as consumers took a more mixed view of their job and wage prospects.
The percentage of people in the survey who believed jobs were hard to get rose to 23.8%, from 22.5% last month.
Economic barometer
However, the percentage of people who believed that jobs were plentiful remained at 22.5% for a second month in a row.
The overall state of the economy remains healthy and consumers' outlook suggests no storm clouds on the short-term horizon
Lynn Franco, Conference Board
However, analysts say that in recent years the link between confidence and retail sales seems to be diverging, with consumers making big purchases - such as cars - despite telling surveys they believe times are getting harder.
Earlier this month, big US stores said a heatwave had generated better-than-expected sales in June - with retail giant Wal Mart reporting its biggest sales leap in 13 months.
Petrol jitters
Experts claimed surging oil prices may have prompted the dip in consumer morale - recent record crude prices have now fed through to the petrol pump resulting in record fuel prices.
Government figures earlier this month showed that petrol prices hit a new record of $2.33 a gallon - leaving prices up 41 cents compared to the same period last year.
Lynn Franco, the head of the board's Consumer Research Center, said July's dip in confidence - which ended a three month winning streak - was "no cause for concern".
"The overall state of the economy remains healthy and consumers' outlook suggests no storm clouds on the short-term horizon," she said.
The confidence of American consumers in their economy has slipped unexpectedly in July after it had risen the previous three months.

The Consumer Confidence Index dropped from 106.2 in June to 103.2 this July, the ''Conference Board'' said in New York. Analysts blame it on Amercians' increased fear over job security, wage perspectives, and rising gas prices.

But Lynn Franco, director of the board's ''Consumer Research Center'', is unconcerned: "The overall state of the economy remains healthy and consumers' outlook suggests no storm clouds on the short-term horizon."

In the last months, several large American corporations have announced job cuts. Among them are Eastman Kodak, Hewlett-Packard, and Kimberly-Clark.

Private consumer spending is considered to be the backbone of the U.S. economy since it accounts for two-thirds of its Gross Domestic Product. However, in the last few years, the correlation between consumer confidence and actual retail sales has been questioned since consumers were spending money even when survey figures said they wouldn't.