The conventional wisdom is that consumer spending is what drives the U.S. economy. And consumer spending arises out of consumer confidence. Unfortunately, the signals along the road to economic recovery are mixed, what with the rising GDP growth and the dismal unemployment numbers. Its enough to leave investors scratching their heads. What barometers of consumer confidence will the coming week bring?

The TIPP Economic Optimism Index for November is scheduled for Tuesday, and the University of Michigan Consumer Sentiment Index for November is due out Friday.

Consumer borrowing fell for the eighth straight month in September. This record-setting streak is due largely to tightening by lenders, unemployment and the conservative preference to pay down debt rather than spend. This widespread fit of fiscal responsibility, economists fret, could prevent a recovery from taking root, since consumer spending is responsible for 70% of the U.S. economy. This conventional thinking, of course, overlooks the fact that an eventual increase in spending that isn't fueled by consumer spending will yield a recovery that's more likely to last.

According to the Federal Reserve, borrowing fell at an annual rate of $14.8 billion in September -- it's biggest drop since July and much larger than the $10 billion predicted by economists. The behavior is exactly what you'd find in people worried about losing their jobs or focused on rebuilding safety funds and investment portfolios. Those who want to borrow are finding banks won't be complicit this time, as they clamp down on lending practices.

There's a chill in the air and a slight up-tick in confidence. Holiday discounts are coming a bit earlier, too. For retailers, this has been a great combination, leading to the second consecutive month in which retail sales increased.

This follows more than a year of drops. Consumers aren't going crazy, but they are loosening their wallets a little bit. Consumer spending accounts for 70% of the U.S. economy, and the coming holiday season is where the action is -- for the retail sector and, consequently, for everyone else.

Analyst upgrades:

• Credit Suisse upgraded Stancorp (NYSE: SFG) to Outperform from Neutral citing relative valuation and EPS visibility.
• Jefferies upgraded Cypress Semiconductor (NYSE: CY) to Hold from Underperform after its channel checks indicated the company's capacitive touch screen solution has design traction. The firm raised its target on shares to $10 from $7.50.
• FBR Capital upgraded Pacific Sunwear (NASDAQ: PSUN) to Outperform from Market Perform to reflect improving store channel checks, the company's brand focus and controlled inventory, as well as the firm's belief that guidance could be conservative. FBR raised its target on shares to $9 from $6.
• Advanced Micro (NYSE: AMD) was upgraded to Market Perform from Underperform at JMP Securities.
• Lam Research (NASDAQ: LRCX) was upgraded to Overweight from Equal Weight at Barclays.
• Philips Electronics (NYSE: PHG) was upgraded to Buy from Hold at RBS.

Back in the late 1960s -- when the hippie movement was in full force -- Donald Fisher started a blue jeans store in San Francisco. Yes, it eventually turned into a retail empire, called The Gap (NYSE: GPS). The company now has more than 3,100 stores and $14.5 billion in revenues.

Unfortunately, Fisher died over the weekend. He was 81.

When Fisher started his business, he had no experience in the retail trade. Instead, his background was in real estate.

But this was no problem. Like any good entrepreneur, he saw a mega opportunity -- that is, a change in the fashion habits of the masses. After all, the Gap stands for "generation gap." And the Baby Boomers were certainly ripe customers -- and willing to pay.

Retail sales were down for the twelfth month in a row in August, according to an Associated Press report. Consumers stayed focused on what they need rather than what they want, as unemployment remains high and even those employed worry about the future of their jobs.

The silver lining, though, is that the coming holiday season might not be as bad as many thought.

Some retailers actually showed gains. TJMaxx (NYSE: TJX) and Old Navy, a Gap (NYSE: GPS) company, for example, saw year-over-year sales increases, though upscale stores generally sustained declines. The action on the discount side could be an early sign that the consumer is ready to play.

American Eagle Outfitters (NYSE: AEO), a fashion retailer that competes with Gap (NYSE: GPS) and Abercrombie & Fitch (NYSE: ANF), didn't do too well in Q2. Total sales went down 5%, and earnings per share on a GAAP basis fell a most awful 50% to 14 cents. According to Bloomberg, the adjusted earnings of 12 cents per share came up short of analyst expectations by three pennies.

Same-store sales hit the double-digit mark to the downside: they decreased 10%. Not a good number for this kind of business. Promotional markdowns helped to drive the gross margin down. The operating margin also took a hit.

J. Crew Group Inc. (NYSE: JCG), the fashion retailer that is reportedly a favorite of the Obamas and which has been publically traded since 2006, is scheduled to discuss its second-quarter 2009 results today in a conference call at 4:30 PM ET. You can catch the live webcast of the call on the company's website.

For the three months that ended in July, analysts surveyed by Thomson Reuters expect the New York-based company to report that its earnings fell 46.4% from a year ago to $0.15 per share. But revenue for the quarter is expected to be 3.0% higher to $346.4 million.

Here are some highlights from last week's earnings coverage from BloggingStocks:

• Aeropostale Inc. (NYSE: ARO) strong Q2 results beat expectations due to rising same-store sales.
• Agilent Technologies Inc. (NYSE: A) Q3 earnings topped low expectations and revenue declined.
• Analog Devices Inc. (NYSE: ADI) posted better-than-expected Q3 results but shares fell on weaker margins.
• Baidu Inc. (NASDAQ: BIDU) CEO said its new advertising efforts will boost sales over the long run.
• Barnes & Noble Inc. (NYSE: BKS) had a better-than-expected Q2 profit but same-store sales fell.
• BJ's Wholesale Club Inc. (NYSE: BJ) reported solid Q2 numbers and raised its full-year guidance.

Aeropostale (NYSE: ARO), a retailer that competes with Abercrombie & Fitch (NYSE: ANF), American Eagle Outfitters (NYSE: AEO), and Gap (NYSE: GPS), posted what I thought was a superb second-quarter earnings summary on Thursday after the bell. The figures were very appealing, and I would've expected a better after-hours reaction by the stock to the news. Then again, the market can never be predicted. It will do whatever the heck it wants.

Net sales increased 20%. Not bad, am I right? Wait, check this out. Earnings per share came in at 57 cents, compared to the 31 cents reported in the year-ago quarter. According to Reuters, that was a penny ahead of expectations. But that penny beat on the bottom line isn't what impresses me the most. It's the strong per-share profit expansion that I find compelling.

Limited Brands (NYSE: LTD), whose colleagues include Gap (NYSE: GPS) and Hanesbrands (NYSE: HBI), is one sexy company. It operates the Victoria's Secret chain of stores among other concepts. However, it's been having trouble increasing sales and income during the recession -- like every other retailer out there, of course. But the stock has been strong, and the bulls have yet more evidence that their thesis on the business might be justified.

Limited Brands reported second quarter results Wednesday after the close. Its adjusted earnings were 19 cents per share versus 27 cents per share in the comparable period last year. Total sales dropped 9.5%, and same-store revenues collapsed 9%. With numbers like those, where do I get the idea that the bulls might have a case?

Abercrombie & Fitch (NYSE: ANF) is such a funny stock story. The company reports what I thought was a quarter full of dire results, and the market still sends shares higher. They closed almost 4% higher, in fact, on Friday. I don't get it.

For the second quarter, sales decreased 23%, and the overall same-store sales statistic, which is a really important metric for retailers, sank 30%. A net loss of 30 cents per share was booked, mostly on the back of the discontinuation of the Ruehl business. Excluding the effect of the closure, Abercrombie made 8 cents per share, and that, according to Reuters, beat by a mile the expected loss of 7 cents per share.

Guess? Inc. (NYSE: GES), a fashion retailer that competes in the mall with companies like Abercrombie & Fitch (NYSE: ANF), Gap (NYSE: GPS), and JCPenney (NYSE: JCP), told the market how it did in Q1 on Thursday after the bell. As I write this during the early afternoon on Friday, shares of Guess? are up well over 6% on very good volume. Was there something to this earnings report?

I didn't think the numbers were particularly fetching. Revenues declined nearly 10%, thanks in part to the effects of currency translation (maybe that should be no thanks). Earnings per share came in at $0.35, a massive 30% decline. And same-store sales in North America dipped 10% (take out currency, and the dip was 6%, which still wasn't good).

Gap Inc. (NYSE: GPS - option chain) stock is falling today after the company reported its same-store sales fell 6% in May, worse than the 5% decline predicted by analysts. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on GPS.

This morning, GPS opened at $17.50. So far today the stock has hit a low of $16.74 and a high of $17.70. As of 11:50, GPS is trading at $16.77, down $1.46 (-8.0%). The chart for GPS looks bearish and S&P gives GPS a negative 2 STARS (out of 5) sell ranking.

J. Crew Group (NYSE: JCG), a retailer that shares space at the mall with Abercrombie & Fitch (NYSE: ANF), Gap (NYSE: GPS), and American Eagle Outfitters (NYSE: AEO), has, as a stock, been doing extremely well.

As of this writing, shares of J. Crew have doubled over the last six months. It certainly hasn't hurt the company to see that the Obama family wears its clothes.