Investors looking to put the desultory (but not as bad as feared) first-quarter earnings season behind them had best hold off for a few more weeks. Earnings season ain't over 'til it's over -- and we've yet to hear from the retailers.

With 70% of the economy driven by consumer spending, Wall Street was rightly disappointed in Wednesday's worse-than-expected retail sales data ahead of the sector's earnings season, which kicks off Thursday with Wal-Mart (WMT) . Housing bellwethers like Home Depot (HD) and Lowe's (LOW) are on tap next week. Despite Wednesday's early selloff, the good news is that the market is poised to rise, at best -- and shrug off, at worst -- what these companies report, experts say. But longer term their numbers and commentary will offer important clues as to the progress of the painful process known as the New Frugality.

"What's good for the economy and what's good for society is not necessarily good for retailers," says Matthew Kaufler, equity market strategist and portfolio manager at Federated Clover Capital Advisors. "It's good when people stop using their homes and portfolios as ATM machines."

After all, too much consumer debt -- in the form of mortgages, home equity lines of credit and credit cards -- got us into this mess. What the retailers say -- from the dollar stores to the luxury players -- will offer a window into how consumers are weaning themselves from their debt-fueled ways.

Retail Reports and the Market

In the shorter term there's little fear that retailers will be the ones to pull the plug on the current two-month rally, experts say. The S&P Retail index has gained a whopping 45% since the market low of early March (vs. a roughly 30% gain for the Dow Jones Industrial Average). But any profit taking ahead of the results is to be expected, if only because shares have been on such a tear, says Brian Sozzi, retail analyst with Wall Street Strategies.

"Retail stocks made a tremendous run on very downbeat numbers already," Sozzi says. Let us also not forget that financial stocks have been leading the market by the nose, Sozzi says, not the retailers.

Indeed, so much bad news is already baked in and expectations are so low that retailers are more likely to provide a boost for the market rather than a drag, says Michael Rubino, chief executive of Rubino Financial Group.

"Earnings aren't being used as a gauge like they normally are because everyone expects them to be so negative," Rubino says. "If anything, there's more chance for upside surprises than downside surprises -- and positive surprises will have more weight, especially for a Home Depot or a Lowe's."

Retail Reports and the Economy

The good news, then, is that retail earnings and outlooks are more likely to be good or at least neutral for the broader market. Of more strategic concern is what they tell us about consumer spending habits.

No one wants to see higher-priced stores like Saks (SKS), Coach (COH) and Tiffany (TIF) get creamed at the cash register, but some pullback is actually healthy -- and that's a trend we shall see continue, says Joe Clark, managing partner of Financial Enhancement Group.

"We are moving from a wants-based economy to a needs-based economy," Clark says, a point that's amply supported from recent spending data at the dollar stores.

While the luxury players slash prices to stem the loss of luxury shopper traffic, stores like Family Dollar (FDO), Dollar Tree (DLTR) and privately held Dollar General are gaining high-income customers. Indeed, Nielsen said Tuesday that high-income shoppers (households making more than $100,000 a year) increased their spending at dollar stores by 18% in the second half of 2008 vs. 2007. By comparison, low-income shoppers increased their dollar-store spending by 8%, while midincome consumers spent just 6% more there.

No one knows how these changing shopping patterns will all sort out, but it s going to be tough going for retailers for the foreseeable future. That's why Clark advises investors to brace themselves for very conservative guidance -- or no guidance at all -- from most retailers this earnings season. After all, the market's eyes are firmly fixed on the critical back-to-school and holiday shopping seasons. That makes the next retailer earnings season, rather than the current one, the key for investors. And that's the quarter that promises to be a nail-biter.