Investor worries that the year-old economic recovery is getting shaky have driven down U.S. manufacturer shares over the past two months.

When big industrials report quarterly results this month and give Wall Street their outlook for the rest of the year, they will show investors whether their worries were justified.

Industrial shares, as measured by the Standard & Poor's capital goods industry index <.GSPIC>, have fallen at a sharper pace than the S&P 500 <.SPX> over that time.

General Electric Co is expected to break a nine-quarter streak of earnings declines on Friday and analysts will look for fellow blue-chip manufacturers United Technologies Corp , Caterpillar Inc and 3M Co to post double-digit percentage profit growth, according to Thomson Reuters I/B/E/S.

But investors will be more interested in what top chief executives like GE's Jeff Immelt and Caterpillar's new head Doug Oberhelman have to say about their companies' prospects over the next few quarters.

We ran into the first part of this year with expectations very high, said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio. But after shocks such as the BP oil spill and Europe's sovereign debt crisis, investors have become more nervous, he said.

These factors are forcing investors to reset their expectations, Klein said. Have those expectations been brought low enough? We'll find out. (For a related graphic, click:

Analysts look for manufacturers, on average, to post a 16 percent rise in earnings, lagging an expected 27 percent rise across the S&P 500, according to Thomson Reuters data.

But a year into an industrial recovery, it is not surprising to see the growth rate ease, said BB&T Capital Markets analyst Holden Lewis.

There's not a lot of doubt that it's going to be a strong quarter, Lewis said. There's nothing suggesting that industrial markets have backed off at all. The real question is, is anybody going to care?

Early quarterly reports have brought investors some good news. Aluminum producer Alcoa Inc on Monday posted stronger-than-expected results for aluminum demand and on Tuesday Tyco Electronics Ltd reported preliminary fiscal third-quarter profit that beat Wall Street's expectations.


Friday's report could be a turning point for GE. After nine consecutive quarters of declining earnings, analysts are looking for the largest U.S. conglomerate to post a rise in profit of almost 2 percent, with per-share earnings roughly flat with last year's level.

The world's biggest maker of jet engines and electricity-producing turbines opened the year with a 32 percent drop in first-quarter profit that it will have to offset with growth through the next two quarters if it is going to make its target of flat earnings for the year.

Analysts are looking to the company's oil and gas and healthcare equipment units as the best performers for the quarter, with performance also helped by lower rates of losses on loans made by its GE Capital finance unit.

Results may also be boosted by stronger demand for aircraft components and engine repairs as businesses and leisure travelers return to the skies after pulling back during the downturn. Rival engine maker United Tech and corporate jet maker Textron Inc could also benefit from this trend.

Textron, the world's largest maker of corporate jets, is one U.S. manufacturer that could surprise Wall Street. Some of the more accurate analysts, as measured by Thomson Reuters StarMine, look for the company, now led by former GE executive Scott Donnelly, to beat consensus forecasts by 3.1 percent.


Many industrials, from GE and Honeywell International Inc to Caterpillar and Deere & Co , generate a big chunk of their sales outside the United States, and with their home economy as well as Europe's remaining soft, are counting on developing nations including China, India and Brazil.

Emerging Asian economies, whose downturn was far shallower than that of the West, have ramped their industrial production back to its previous peak level reached in 2008, according to a report released last week by the Manufacturers Alliance/MAPI.

That is spurring demand for commodities, both food to feed growing populations and metals and fuel to drive factories.

Caterpillar, the world's largest maker of heavy equipment, reported an 11 percent rise in global dealer sales for the three months ended in May, the first such increase in more than a year and a half, driven by the Asia-Pacific region.

Companies who rely heavily on sales to wary U.S. consumers face greater risk.

Motorcycle maker Harley-Davidson Inc is expected to post earnings at more than quadruple last year's second-quarter level as its finance arm improves. But it could miss consensus by 3.7 percent, according to StarMine data.

Harley's expected better results reflect a company that has cut costs dramatically, including through job cuts, over the past two years. That is a strategy that manufacturers of all stripes have relied on to boost margins and preserve profit.

Now investors are looking for more than higher margins. They want to see stronger revenue and -- more importantly -- orders, which indicate future revenue. Higher orders would be the strongest sign that end markets are recovering.

Now it's about when does the recovery start to hit, said Eric Schoenstein, principal at Jensen Investment Management, which owns shares of 3M, Amphenol Corp , Emerson Electric and United Technologies. We want to hear, is the eventual recovery still on track, and how are they taking advantage of that potential opportunity?

(Reporting by Scott Malone in Boston and Nick Zieminski in New York, additional reporting by James B. Kelleher in Chicago. Editing by Robert MacMillan)