If you go by retail sales and earnings results issued this past week, the outlook isn't bad at all.

On Thursday, Wal-Mart Stores Inc., Target Corp. and Kohl's Corp. offered upbeat forecasts for consumer spending as they reported solid second-quarter profits. Meanwhile, the Commerce Department reported a 0.7 percent increase in retail sales in July, following a 0.5 percent drop in June.

"Although I am concerned about high gasoline prices, I continue to believe that growth in employment and real income will lessen the impact," said Lee Scott, Wal-Mart's president and chief executive. "I still feel good about the year."

But some economists are not yet convinced, and worry that the continuing rise in energy prices could further depress consumer spending. High oil prices could derail job growth, which was extremely weak last month.

"How the price of oil behaves will determine how strong or weak the retail sales will be," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "The longer the oil prices stay high, the more pervasive it will be in cascading throughout the retail sector."

Many consumers are shopping less as higher energy and food costs are passed on to them. Nola Wright, of West Des Moines, Iowa, said she paid more at the local Wal-Mart than she did six weeks earlier although she bought the same staple items, including milk, eggs and paper goods.

"There isn't anything that is cheaper from a year ago. Even the price of milk has increased," she said. She added: "We come here about once every six weeks and load up. We couldn't afford to come more."

July's sales results showed a widening sales gap between stores that target low- and middle-income shoppers, and those catering to wealthier customers who are more financially equipped to handle higher gas prices and who feel more secure in their jobs.

One of the hardest-hit sectors has been midpriced department stores like May Department Stores Co., which saw a pickup in sales earlier in the year but fell back into a decline in July. Family Dollar Stores Inc., whose customers tend to have smaller incomes, said earlier this month that sales of nonessential merchandise fell below company expectations.

"Hopefully, this will be a blip," said George Mahoney, executive vice president at Family Dollar.

Meanwhile, discounters such as Target and Wal-Mart made somewhat of a recovery in July, but their results were still well below the pace of earlier this year.

Over the next few weeks, analysts will be closely watching the critical back-to-school business, which is a better indicator of consumer spending than summer sales. So far, the results have been mixed.

Wal-Mart said Thursday that initial back-to-school sales have been encouraging, while Kohl's said it remains confident that it will return to same-store sales gains in the third quarter after struggling with a 1.1 percent decline in the second quarter.

Among retailers that cater to teens, initial sales have run the gamut. American Eagle Outfitters Inc. reported a 21.7 percent gain in same-store sales in July, while Abercrombie & Fitch suffered a 9 percent decline.

Cohen said higher gas prices are affecting retail sales in two ways, said Marshal Cohen, senior industry analyst at NPD Group Inc., a market research company in Port Washington, N.Y. Consumers feel less secure about spending, but they're also likely to make fewer trips to malls and shopping centers as they try to conserve gas.

In fact, the 50-cent surge in the price of regular unleaded gasoline will cost the average household an extra $500 more this year if sustained through the rest of the year, according to Mark Zandi, chief economist at Economy.com. in West Chester, Pa. That's not small change for families on a budget.