By Kristina Cooke

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.

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.