Consumer spending: Not dead. Yet.

So far, a housing slump and high gas prices haven't stopped shoppers. But the back-to-school season could be a big test.

By Parija B. Kavilanz, senior writer

NEW YORK ( -- To anyone who's rushing to bet that Americans are finally tiring of their favorite past-time - shopping - think again.

Even though a government report from earlier this week showed that consumer spending suffered its weakest growth in six months, some economists say they need more proof before they're convinced that Americans are indeed cutting back.

Richard Hastings, chief retail analyst with Bernard Sands, feels the outlook on spending is still relatively vague.

"Same-store sales are an intuitive general indicator of what's happening at the ground level. Those look OK for now," Hastings said. "But it's still too early to know what the symptoms are that will clearly tell us that spending is slowing," he said.

He said his point of clarity will come in a few months as retailers prep for the critical back-to-school shopping season.

"That's the second biggest selling season for stores after Christmas," Hastings said. "The sales numbers in July, August and September will be crucial and we'll better know about the state of consumers by October."

But until then, other economists are looking to a few key economic indicators to assess whether or not Americans still feel the urge to splurge.

Nariman Behravesh, chief economist with Global Insight, said he's closely watching the job market and wage growth.

"Income growth is the No. 1 risk to spending. The other is jobs," Behravesh said. "These [two indicators] would be the deciding factor on whether or not consumers will have the ability to keep shopping in the months ahead," he said.

Shopping hinges on jobs and wages

On a positive note, jobs growth is strong and wage growth continues to outpace inflationary pressures. "So this sets the floor on spending," he said.

It's also helping to offset pressure on Americans' discretionary income from declines in home prices, rising mortgage delinquencies, and higher gas and energy costs.

Case in point: MasterCard's whopping profit from last quarter.

MasterCard (Charts) reported Wednesday that its first-quarter income soared 70 percent - a record for the company - led by a 16.4 percent growth in total dollar volume of transactions and a 19.4 percent jump in the number of MasterCard credit and debit cards transactions during the period.

Moreover, the closely watched retail sales at stores open at least a year, also known as same-store sales, are holding up well.

Economists and Wall Street obsess over same-store sales numbers, which retailers report on a monthly basis, because they're considered to be a good proxy for consumer spending, which fuels two-thirds of all economic activity.

Economists say a same-store sales growth of 3 percent or higher reflects a healthy consumer.

Year-to-date, same-store sales on average are up 4.2 percent for Gap (Charts, Fortune 500), Wal-Mart (Charts, Fortune 500), Target (Charts, Fortune 500), Costco (Charts, Fortune 500), J.C. Penney (Charts, Fortune 500) and the other 51 national store chains tracked by Thomson Financial.

Additionally, even though the firm forecasts April same-store sales to increase an average of just 0.9 percent, most economists tend to look at the combined sales results for March and April due to the shift in the Easter holiday which sometimes pulls April sales into March.

According to Thomson Financial, that two-month average is currently tracking a 3.5 percent increase this year, softer than last year's 4.2 percent increase, but still quite decent.

Even so, Steve Cochrane, senior economist and managing director with, said the persistent resiliency of the American consumer in the face of a two-year run-up in gas prices and prolonged housing woes still makes him nervous.

"We keep expecting retail sales to be weak every month and we keep getting surprised," Cochrane said, although he noticed that the numbers have eased a bit.

"I'm fairly convinced that the worse is yet to come," Cochrane said.

Right now, the slump in home equity - combined with gas and energy price inflation - is hitting low-income households the hardest.

That's evident in softer sales at Wal-Mart, which primarily sells to cost-conscious paycheck-to-paycheck consumers, while mid-tier chains such as Kohl's and J.C. Penney as well as higher-end sellers such as Nordstrom (Charts, Fortune 500) continue to post strong monthly sales increases.

"The slower housing activity hasn't fully filtered into the economy yet," Cochrane said. "So the negative wealth effect has only kicked in in some regions of the country."

However, the weak housing market is hurting the broader economy, forcing the nation's gross domestic product (GDP) in the first quarter to grow at the slowest pace in four years.

To be sure, when interest rates were falling and home prices were rising, many low-income consumers quickly refinanced their mortgages at the lower rates, effectively using equity from their homes to fuel their buying.

But as rates started to climb, refi activity slowed, as did consumers ability to pull money from their homes. This has also sparked mortgage delinquencies, especially in the sub-prime market, which is typically defined by low-income consumers with poor credit.

Cochrane cited anecdotal data from Florida and Southern California that showed a slowdown in purchases of "hard goods" such as refrigerators and washing machines, items that consumers typically finance through credit.

"This could be early signs of more hardships ahead, especially as households face higher mortgage payments," he said.

Even though consumers are still tapping into their home equity to cover short-term hits to their wallets like the spikes in energy and gas costs, Cochrane said this will lessen as home price appreciation slows and lending guidelines tighten.

Hastings, too, is closely monitoring this "bifurcation" in consumer spending.

"We noticed that since mid-2005, spending and wage growth among the low-income population hasn't kept up with inflation in energy, gas, education and healthcare," Hastings said.

On the other hand, the mid to upper-income consumers have been completely immune from everything, he said.

Watch those gas prices, Hastings said.

"If gasoline stays at $3 a gallon for another six months or longer, then we could get this trickle-up phenomenon where there's more spending softness among mid-income consumers," he said  Top of page