It's also the second month in a row that sentiment improved, after a six-month slide since January -- but it remains about half what it was a year ago.
"Consumer confidence readings suggest that the economy remains stuck in neutral, but may be showing signs of improvement by early next year," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.
The latest reports on housing, meanwhile, showed that the severity of the slump may be lessening. The Standard & Poor's/Case-Shiller U.S. National Home Price Index showed home prices dropping a record 15.4 percent during the second quarter. However, the rate of single-family home price declines slowed from May to June, a possible silver lining.
Sales of new homes also posted an unexpected gain in July as heavily discounted properties enticed cautious house hunters to become home buyers, according to the Commerce Department.
Falling gas prices helped boost consumers' gloomy mood, Franco said.
The Conference Board's Present Situation Index, which measures shoppers' current assessment of the economy, declined to 63.2 from 65.8 in July. But the Expectations Index, which measures their outlook over the next six months, jumped to 52.8 from 42.7 in July. The 10-point increase marked the biggest increase since November 2005, when the economic fallout of hurricane Katrina was subsiding.
Franco said that declines in the Present Situation Index, both in term of business conditions and the labor market, appear to be moderating. She noted that an improvement in consumers' expectations suggest better times ahead. However, "overall readings are still quite low by historical standards and it is still too early to tell if the worst is behind us."
Economists and investors closely monitor consumer sentiment as consumer spending represents about two-thirds of all economic activity.
While economists say they can't underestimate the relief among consumers to see gas prices come down, Americans are still faced with a number of big economic challenges as they head into the crucial fall and holiday selling seasons, from a weak job market to tight credit conditions and the housing slump.
The Standard & Poor's/Case-Shiller report showed that 14 cities in the monthly index showed improvement from May to June, but nine recorded positive returns. And the government reported that sales of new single-family homes rose by 2.4 percent last month to a seasonally adjusted annual rate of 515,000 units, the most since April.
Still, the Consumer Confidence report -- derived from responses received through Aug. 19 -- of a representative sample of 5,000 U.S. households -- showed Americans' pessimistic about business conditions and jobs.
Consumers' assessment of current conditions did not improve in August. Those claiming business conditions are "bad" increased to 33.2 percent from 32.6 percent while those who saw them as "good" edged up to 13.4 percent from 13.2 percent last month.
People's appraisal of the labor market also turned bleaker. Those saying jobs are "hard to get" rose to 32.0 percent from 30.2 percent in July, while those who found them "plentiful" declined to 13.1 percent from 13.6 percent.
Consumers' short-term expectations improved, but still remained negative. Those expecting business conditions to worsen over the next six months declined to 25.8 percent from 32.4 percent, while those expecting conditions to improve rose to 11.9 percent from 9.2 percent.
The outlook for the labor market was less gloomy. The percent of consumers anticipating fewer jobs in the months ahead decreased to 30.6 percent from 37.3 percent, while those expecting more jobs increased to 10.5 percent from 8.0 percent.