The big question for

UPS

(UPS) - Get Report

this week is whether it will return to solid earnings growth in the first quarter after a holiday stumble.

Analysts generally expect that the company will do just that by combating domestic competition from rivals

FedEx

(FDX) - Get Report

and

DHL

and expanding international package volume. Some are starting to worry, however, that the economy is slowing enough to hurt UPS' results.

On average, analysts expect UPS to log earnings of 73 cents a share when it reports before the bell Thursday, according to Thomson First Call. That would mark a 9% increase from EPS of 67 cents a year before. It would also mark an improvement from the fourth quarter, when earnings grew by only a penny. The company was forced to talk down earnings estimates sharply before reporting its fourth quarter, blaming a slowdown in domestic volume in the last week of the year.

UPS aggressively attempted to wrest back domestic volume from DHL and FedEx during the latest quarter, says Mark Davis, an analyst at FTN Midwest Research, whose 74-cent EPS forecast is a penny above consensus. Late last year, DHL and FedEx made inroads on medium-sized customers when UPS took its eyes off them to focus on rural and suburban markets, he says. The mistake contributed to the fourth-quarter miss.

"UPS will get incrementally more aggressive with pricing to win back volume," says the analyst, who owns no shares of UPS. FTN Midwest does no investment banking.

Other analysts are growing jittery, however, that UPS' report will reflect a slowing economy. Large market indices slumped last week on fears of decelerating growth, and transportation stocks posted big declines, with UPS down 4% on the week, and FedEx off 7.8%.

"I'm a little nervous, given all the stuff we're seeing in terms of concerns about the economy," says Brian Hayward, senior equity analyst at Zack's Investment Research. "If UPS underperforms, it's going to be caused by domestic volume that's not up to snuff."

Recent earnings warnings from trucking companies could bode ill for UPS, says Hayward, who owns no shares of companies he covers. Zack's does no investment banking.

Earlier this month,

USF Corp.

(USFC)

said first-quarter EPS would be less than half the Wall Street consensus, citing slowing auto industry shipments and sluggish growth in the Northeast. In late March,

Covenant Transport

(CVTI) - Get Report

cautioned that it would lose as much as 6 cents a share, blaming weak demand. Analysts had forecast 12 cents of EPS.

One factor that could pressure UPS' earnings is the high price of oil, says Davis at FTN Midwest. Although FedEx and UPS have been able to levy surcharges to pass along higher fuel costs to customers, the surcharges lag swings in crude oil futures. FedEx acknowledged as much when it reported earnings for the quarter ended Feb. 28 and said the recent rally in crude could pressure margins as the company waits for its surcharges to catch up.

But if the economy slows significantly, customers could grow less willing to pay the surcharges, says Hayward at Zack's. "So far, UPS and FedEx have been able to offset fuel increases with surcharges, but eventually it's going to matter," he says. "That may be now, especially if the economy is slackening and there's weakened demand."