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The week ahead offers several key economic reports focused on the manufacturing sector. Manufacturing and housing have been linchpins for the economy until now. However, this week's reports could make a mess of the economic perspective and set manufacturing stocks lower as well. Moreover, just after marking a historic high, the SPDR Dow Jones Industrial Average (NYSEARCA:DIA) could face a serious test if manufacturing data deteriorates.

Housing and manufacturing have been linchpins to economic hope until now, but last week, housing data seemed to falter a bit. New Home Sales and Pending Home Sales both tracked lower. Now this week we get a gut check in manufacturing.

The week's economic slate is full of manufacturing data points that could test investor resolve. Just Monday, we have the Markit Economics PMI Manufacturing Report and ISM's Manufacturing Index. Then on Tuesday, we will receive new Factory Orders data and monthly Motor Vehicle Sales from Ford (NYSE:F), GM (NYSE:GM) and others. The track of the Markit PMI report shows the index has been tailing off, and so a lower figure seems possible in the pending report. February's closing index value was short of its mid-month value, which was lower than January's closing tally. As for ISM's data point, while the economists consensus forecast for a reading of 54 in March is only slightly short of the prior reporting at 54.2, the range of views implies a higher likelihood of a lower result (51.6 to 55.0). As for Factory Orders, based on the Durable Goods Orders data ex-transportation, there is not much to be excited about.

The defense sector is an important component of American manufacturing, but defense spending is no longer a sacred cow. The sequester spending cuts proved that, and major defense companies have been notably distressed in recent conference calls. It seems to be finally translating into real consolidation now. United Technologies (NYSE:UTX) announced it would lay off 3,000 employees this year, according to Challenger, Gray & Christmas.

Meanwhile, industrials like Caterpillar (NYSE:CAT) are rightsizing operations and cutting down inventory to meet weakened demand. Caterpillar was a notable non-participant in the stock market rally of the first quarter, and a company we just evaluated in a recent article. In its December quarter report, Caterpillar noted a softer U.S. situation, European recession and slower growth in China. Other similar manufacturers including Deere (NYSE:DE) are tracking CAT's stock price and sense of sector shortfall as well.

This week when these four critical economic reports find the newswire, a lot hangs in the balance. Certainly, the economy will get an important inquiry as its linchpin faces a stress test. Also, the manufacturing names mentioned here should move on the news, if not the whole market, but the direction will depend on the data. So I suggest investors pay close attention to the manufacturing reports scheduled for Monday and Tuesday morning. In recent works, I have asked if we've been ignoring recession signs. Well, any falter in manufacturing would raise the question in a much more significant way.

Source: This Week Manufacturing May Mess Up The Economic Perspective