Perhaps the economy has dodged a bullet. This week's bullish reading on durable-goods orders, along with an upward revision in first-quarter GDP, implies that we are not yet seeing a major slowdown in the manufacturing sector of the economy.

On

Tuesday, June 3

, we'll get a look at the monthly reading of factory orders. The durable-goods figures have been very erratic for the last three months, so it's not clear if the factory goods number will come in above or below forecasts.

In late 2007, factory orders slowed to crawl, but they have recently spiked to a roughly 5% annualized growth rate. Economists believe that factory orders were still rising at a 3% to 5% annualized clip in May.

Keep watching factory floor activity, as it determines whether we can skirt a major economic downturn. In the last few years, the service sector has continued to power economic growth. Yet as you can see from the chart below, the service economy is slowing, even as manufacturing readings have continued to fall.

Goods vs. Services

Click here for larger image.

For the economy to stay afloat, the manufacturing sector will need to pull its weight. Perhaps the weak dollar will help fuel continued growth in exports. Or perhaps weak domestic demand will create too much of a headwind for the sector.

Ciena Grows in a Soggy Field

For the second time in a decade, the telecom equipment sector is facing another difficult stretch. Major equipment makers such as

Alcatel Lucent

(ALU)

and

Nortel Networks

(NT)

are noting a sharp slowdown in demand. That macro sentiment helps explain why shares of

Ciena

(CIEN) - Get Report

have fallen more than 30% in the last six months.

But if you dig deeper, you'll find a telecom equipment player that is growing at a rapid clip and is attractively priced.

If you haven't looked at Ciena lately, it would be easy to think that the company is another telecom dog. Ciena lost more than $5 per share in 2003, 2004 and 2005, and it eked out a tiny profit in 2006. Sales growth kicked in during that period, as revenue rose 43% in 2005, 32% in 2006 and 38% in 2007. All that sales growth finally fueled the bottom line in 2007, when EPS spiked to 87 cents. And analysts believe per-share profits will more than double this fiscal year (which ends in October) and rise another 15% to 20% in 2009.

Why is Ciena growing while key competitors are backpedaling? Because the company has developed a suite of products that meet the needs of the ever-expanding cable companies. These firms are looking to deliver landline phone services, data, video and wireless to their customers in one bundle. And Ciena's hardware and software help them to expand their networks in a cost-effective manner.

You may want to tune into Ciena's second-quarter conference call, which is slated for

Thursday, June 5

. On the call, management is expected to run through a host of drivers that should help maintain the current growth clip.

Merrill Lynch's Tal Liani says investors have mistakenly assumed that Ciena had a poor quarter and believes that "in-line results will be sufficient to drive up the stock." Notably, Ciena has beaten quarterly EPS estimates by at least 14% in each of the last three quarters.

Part of the pressure on Ciena's share price is attributable to concerns about turmoil at

Sprint Nextel

(S) - Get Report

, which was a large customer in 2007. But management has already acknowledged that Sprint will not be as active a customer in 2008, and it still raised guidance.

Looking ahead, Ciena appears well-positioned to capture the next wave of telecom equipment spending, thanks to a recent acquisition of World Wide Packets. WWP makes hardware and software that sits "at the heart of the

network switching fabric," according to Argus Research's Jim Kelleher.

With sales and profits rising at a fast clip, and shares trading for a reasonable 15 times projected 2009 EPS, Ciena looks like one of the few winners in the muddled telecom equipment landscape.

(Additional research for this article was provided by Richard Posluszny.)

David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.