(FORTUNE Magazine) – Ever since the stock market began its swan dive in the spring of 2000, economists and market watchers have been posing the same question over and over again: When, they ask, "is consumer spending going to give out?"

We've got a shocker for you: It's not. Yes, there's a swirl of scandals, the looming possibility of a tangle with Iraq, and periodic fears about further job cuts. But as the mid-September tally of better-than-expected retail sales attest, there's mounting evidence that indefatigable American consumers (who power two-thirds of GDP) may just keep spending--and prevent the weak recovery from tripping back into recession.

"I've long lived by the motto to never short American hedonism," says Paul McCauley, an economist at bond fund company Pimco. "It's never a matter of the American will to spend, but a question of the wallet. And I think the wallet is pretty sturdy right now."

Here's the case for consumers: First off, most people have jobs. Though the unemployment rate moved back up to 5.9% in the second quarter of this year (up from around 4% in 2000), until a few years ago 6% unemployment was considered a sign that the U.S. economy was humming. What's more, the factor that has the biggest effect on consumption is personal income--wages, salaries, interest, dividends, and pension payments--and it has continued to grow even as corporate profits shrink. Thanks to low inflation--1.1% currently--real wages have increased 2% over the past year. Bush's tax cut hasn't hurt either. And low inflation, strong productivity growth, and lower interest rates helped disposable personal income rise 9.1% in the first half of the year (after adjusting for inflation), the fastest growth rate in two decades.

Economists were worried about the "negative" wealth effect kicking in as people whose portfolios had crashed felt poorer and began to spend less even though their cash flow remained unchanged. But the negative wealth effect from stocks has been relatively mild. "It may be a 1% drag on consumer spending," says Morgan Stanley economist Richard Berner. While that's not insignificant, it has been more than offset by a positive wealth effect from rising home prices. Since only the wealthiest 10% of American households have more money in stocks than in their homes, far more people benefit from a strong housing market than a soaring stock market.

The low interest rates that are making it attractive for people to buy homes have also set off a wave of mortgage refinancing. This has allowed consumers to tap billions of dollars' worth of equity in their homes, swap high-interest credit card debt for lower-interest mortgage debt, and free up cash for spending on other goods. With the Mortgage Bankers Association index that tracks refinancings up 19% in the first week of September to its highest level ever, the refinancing boom shows no sign of letting up.

Neither do the bargains at retail stores, where shoppers are finding that prices aren't climbing as quickly as they used to. That's bad news for the stores themselves, but it's pretty good news for consumers, who have "benefited enormously at the expense of business," says Mark Zandi of Economy.com.

Case in point? Car sales. Light-vehicle sales climbed about 12% during July, to 18.1 million, helped by automakers' reintroduction of 0% financing deals. And while some large retailers, including Wal-Mart and Federated, warned of a disappointing August, overall retail sales climbed 0.8% during the month (0.5% excluding autos and gasoline). That puts consumption on track to grow at 5% or more in the third quarter. Helping fuel the spree is that most American of traditions: easy credit. While businesses have had a hard time borrowing, consumer credit continues to expand--it rose to $10.8 billion in July, an 8% annual rate of increase.

Naturally, there are some major caveats to this scenario, namely the danger that protracted business weakness might lead to more layoffs, or a war with Iraq might send oil prices soaring. (Historically that has led to consumer spending declines.) Those concerns are serious. There were plenty of reasons, however, to believe consumer spending would give out two years ago too. But so far, nothing has been able to deter America's supershoppers.

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