NEW YORK (Reuters) - Wall Street’s finally wised up to what the rest of America has been trying to tell it for a while: there won’t be a consumer snap-back in the third quarter.

A man waits in line at BJ's Wholesale Club store in New York, August 18, 2008. REUTERS/Shannon Stapleton

With that in mind, analysts have slashed their earnings forecasts for the sector most sensitive to the consumer’s ability to spend beyond the basics.

Consumer spending -- which was supported somewhat in the second quarter by the government’s tax rebate checks -- remains under the gun. Home prices continue to slide, the price of oil remains uncomfortably high and more and more Americans are claiming unemployment benefits.

At the beginning of the year, Wall Street analysts were forecasting a recovery in overall S&P 500 earnings in the third quarter, led by a 50 percent jump in profits at companies that sell non-necessities.

Now, the same analysts see profits at so-called consumer discretionary companies declining by 6 percent, according to Thomson Reuters proprietary data. Over the past four quarters, the sector has recorded an average earnings growth rate of -17 percent.

“These numbers are more realistic than what the Street had been anticipating. I don’t think the buy-side was expecting the third and fourth quarter to be positive, the sell-side analysts are just slow to catch up,” said John Massey, portfolio manager at AIG SunAmerica Asset Management in Jersey City, New Jersey,

“Most of this is related to the macroeconomic environment, which has forced consumers to rein in their spending.”

Consumers are also being forced to watch their spending as credit card companies, hit hard by the credit crunch, are taking a more stringent approach to their clients’ risk profiles.

Even earnings at consumer staples companies, which make daily necessities like soap and food, are now seen falling 1 percent.

These estimate revisions reflect the overall earnings picture for the third quarter.

Wall Street has ratcheted down its view of the third-quarter outlook for nine out of 10 S&P 500 sectors, the exception being energy.

The estimated third-quarter earnings growth rate for the S&P 500, which was 12.6 percent at the beginning of July, now stands at 2.6 percent. And it’s hurtling toward negative -- on Thursday, the growth rate stood at 3.2 percent.

The sector expected to see the biggest decline is, once again, the financials. Over the past few weeks, one Wall Street firm after another has slashed their views of their competitors’ earnings outlooks as the grip of the credit crisis showed no sign of slackening.

Tight credit conditions are also hurting companies not directly linked to the financial sector, as lenders are more reluctant to make new business loans and refinancing is tough, analysts said.

David James, senior vice president at James Investment Research in Alpha, Ohio, said that, with bank lending still under pressure, companies across a variety of industries are likely to begin to feel more of an impact on their bottom line.

“It’s a bear market. The other sectors are going to feel it in their profits too,” James said.

The price of oil, while more than 20 percent off its record peak in July, is still significantly higher than it was a year ago, and is raising production costs for many companies, warned Massey.

“I think a lot of the negative earnings revision you have are due to input costs that are causing margins to compress,” he said.

While most companies have hedged their input costs, some of these hedges are starting to roll off, Massey said.

The biggest boost to the overall earnings picture is still the energy sector, where earnings are seen rising 61 percent in the third quarter. That’s up from a 22 percent rise seen at the beginning of the year, but down from the 63 percent increase seen at the beginning of the week.

But if the price of oil continues to fall in the third quarter, this is likely to affect energy sector profits in the next quarters, said Robert Schaeffer, vice president and portfolio manager at Becker Capital Management.

Other potential pitfalls in the third quarter include the impact of a global economic slowdown and a rise in the dollar on the earnings of multinational companies, said John Schloegel, vice president of investment strategies for Capital Cities Asset Management in Austin, Texas.

“This is the slowest train wreck in our history. ... Everyone saw this coming but didn’t really know the impact,” Schloegel said.