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As analysts and investors brace for earnings reports from more than a dozen major U.S. manufacturers over the next two weeks, they will eye revenue growth as one of the surest signs of health for the industrial sector over the next year.

Sales growth will be critical to profits this year, since major companies including General Electric Co (GE.N), United Technologies Corp (UTX.N) and 3M Co (MMM.N) will likely face rising costs of everything from copper to payroll, which they had slashed going into the recession.

Cost management will matter if the sector is to continue its strong run on Wall Street. Standard & Poor's industrials group .GSPI rose about 20 percent over the past year, the second-biggest gain in the broad S&P 500 index .SPX after the S&P consumer discretionary group .GSPD, which rose almost 26 percent.

"From a top-line, revenue side, we're going to see some modest expansion there," said Peter Klein, senior portfolio manager at Fifth Third Asset Management, in Cleveland, Ohio. "This is what I'm sort of tuning my ear to hear. And if we don't hear it, then maybe some of this ebullience that we've seen in the industrials since this summer will flatten out."

For a related graphic click: r.reuters.com/res86r

FOREIGN DEMAND CRITICAL

Demand outside the United States will be critical to that momentum. More manufacturing executives expect their shipments outside the United States to rise in the coming months, while demand at home eases, according to a Manufacturers Alliance/MAPI survey released last week.

The group's overall composite index of manufacturing activity slipped to 75 from 77, but remained well above the 50 market that separates growth from contraction.

"It suggests maybe a slightly slowing rate of recovery, but still continued expansion," said Donald Norman, an economist with the Arlington, Virginia-based group.

China, a major area of focus for big industrial operations including Caterpillar Inc (CAT.N), Honeywell International Inc (HON.N) and Rockwell Automation Inc (ROK.N), may be the subject of more interest than usual this quarter in the wake of a Wednesday summit meeting between U.S. President Barack Obama and Chinese President Hu Jintao.

COST PRESSURES

Higher raw material prices, particularly for copper, will be a major drag on profit growth this year, and leave executives looking for ways to raise their selling prices on heavy equipment.

"The bigger challenge this year is to stem the margin impact of commodity inflation and seeing what they are able to pass through on pricing, while at the same time leveraging the top-line growth they're starting to show," said Steven Winoker, an analyst at Bernstein Research in New York.

"We're getting back into a more positive cycle and they're starting to spend again," he added.