Against all odds, Americans keep spending and

Wal-Mart

(WMT) - Get Report

keeps getting bigger -- and more efficient.

The nation's largest retailer said Tuesday that it met perhaps its most important goal -- expanding earnings faster than sales -- in the first quarter. The company remained conservative in its assessment of the economy, predicting earnings that were in line with the Wall Street consensus. But the Bentonville, Ark., company's stock rallied, reversing the slump that took hold following last month's slightly disappointing monthly sales data.

Together with a stronger-than-expected April retail sales report -- the government said sales at U.S. retail outlets rose 1.2% -- Tuesday's results from big U.S. retail chains suggest the consumer is continuing to keep the economy humming, observers say. And some economists say they see no sign that consumer demand will abate soon. Wal-Mart jumped $2.54, or 4.6%, at $57.58.

Jumping

Wal-Mart said first-quarter earnings jumped 20% from a year ago, hitting $1.65 billion, or 37 cents a share. Sales rose 14.4% to $54.96 billion. The growth figures mark a reversal from the last fiscal year, when Wal-Mart's sales rose quickly but earnings growth lagged behind. The company, obviously stung by a perceived falloff in its legendary efficiency, had noted its disappointment repeatedly in recent conference calls.

"Last year we grew our market share but had difficulty leveraging our sales to the bottom line," Lee Scott, Wal-Mart's president and CEO, said in a pre-recorded call played Tuesday.

First-quarter earnings were a penny better than the Wall Street consensus, according to Thomson Financial/First Call, and 6 cents better than the year-ago figure. Wal-Mart's same-store sales, which measure activity in shops open at least a year, rose 8.6% at Wal-Mart Stores and 5.7% at the company's warehouse division, Sam's Club.

The softness in sales growth at Sam's Club was one of the few blemishes on an otherwise solid quarter, the company said. In the call, Scott described the results at Sam's Club as "disappointing," saying that sales were up but that operating earnings were flat.

Totally Frank

Wal-Mart is known for giving frank commentary on the state of the consumer economy -- cues that other retailers use to gauge the economic winds -- and executives didn't disappoint Tuesday. The company said that it remained cautious on where the economy is headed, and that improvement is coming slower than anticipated.

"Consumers are cautious," said Scott. "We are experiencing a stronger economy than last year at this time, but the improvement is slower than we would like."

Still, investors were pleased by an uptick in retail activity economywide. Consumer spending, which accounts for roughly two-thirds of economic activity, rose 1.2% in April, the Commerce Department said Tuesday. It was the strongest gain since October, and much better than March's tiny rise of 0.1%. The strong figure provided further evidence to some economists that the economic recovery remains intact.

"Consumers, for the most part, lack neither confidence nor money and as long as they maintain even moderate growth in spending, the economy will keep chugging along," says Bill Cheney, chief economist at John Hancock Financial Services.

Other retailers also posted strong quarterly results Tuesday. Department store chain

J.C. Penney

(JCP) - Get Report

said it earned 29 cents a share, excluding certain items, 4 cents better than analysts were expecting. Shares were up lately 86 cents, or 3.7%, at $24.06. Meanwhile, jewelry chains

Zale

(ZLC)

and

Tiffany

(TIF) - Get Report

reported solid quarters. Zale was up $2.35 at $43; Tiffany lost 75 cents to trade at $39.04.

In Line

On the call, Wal-Mart gave guidance that was in line with prior forecasts but slightly lower than the average among Wall Street analysts. For the full year, Wal-Mart forecast earnings per share of $1.74 to $1.76; analysts had been expecting $1.77. For the second quarter, Wal-Mart said it expects earnings of 43 cents to 44 cents per share, in line with expectations.

Before rallying Tuesday, Wal-Mart shares were off about 14% since hitting a new 52-week high in late March. "The major investment controversy surrounding Wal-Mart continues to be, given its large size, how can the company continue to generate double-digit earnings growth?" wrote Emme Kozloff, of Sanford Bernstein, in a recent report.

She says such worries are overblown, and that even when the company has wrung all the growth it can from its discount stores, the company's rollout of Supercenters -- a discount-and-grocery hybrid -- will ensure growth for years to come.