Uncertainty about the economic strength of drought-stricken farm areas in the United States caused consumer confidence in the domestic economy to decline during July, the Conference Board reports.

The Conference Board's Consumer Confidence Index dropped 2.7 points to 113 in July, the second consecutive monthly drop. The Conference Board has set the confidence level during 1985 at a reference point of 100.The 5,000 consumers surveyed for the management information service by National Family Opinion Inc. continued to express concern over the future of the U.S. economy during the upcoming six months.

Fabien Linden, executive director of the Conference Board's research center, said the decrease in confidence could be traced to the drought that has dried up farm regions throughout the mid-western portion of the nation.

"Virtually all of the loss in consumer confidence during the last two months can be attributed to the drought," Linden said. "Also, a major concern is that living costs will soon escalate."

He said surveyed consumers expected inflation to rise by 5 percent over the next year, compared with a 4.4 percent figure that has dominated the last few months.

The survey also showed that almost 10 percent of consumers expect business conditions to erode during the second half of 1988, compared with 7 percent of those surveyed in June.

More than 15 percent said they thought jobs would become less available as the year progressed.

Consumer plans to buy an automobile during the next six months remained constant from May to June. About 9 percent of consumers during both June and July said they planned to purchase a car.