U.S. income, spending and manufacturing slumped in January, highlighting the impact of war worries.

U.S. personal income rose a less-than-expected 0.3% in January. Despite better payroll growth in the month, the figures showed only a 0.1% rise in wages and salaries, reports BMO Nesbitt Burns. “Declines in durable goods categories, particularly for vehicles, caused a decline in spending. Moreover, February spending is going to be limited by snow conditions and March would be at risk if the war begins. So, no question, consumer spending in the first quarter is not measuring up to the strong gains seen in November and December,” it says.

“Up next on the worry list is the impact of much higher energy bills on discretionary outlays for retail products and services such as travel,” Nesbitt warns. “These figures were disappointing and will likely lead us to trim U.S. Q1 growth estimates.”

Still, RBC says that consumer balance sheets are improving and suggest that once the level of uncertainty dies down, consumer spending should resume its upward march. “Disposable income rose by 0.3% in January and helped to push the personal savings rate to 4.3% from 3.9% in December.”

Also, the U.S. Institute for Supply Management Index, released today, slipped to 50.5 in February, down from 53.9 the month before and lower than market expectations of 52.0. “Underlying details were mostly weak, with the new orders and employment sub-indices showing the sharpest declines,” says RBC. “Recent hikes in energy-related costs likely motivated an increase in the prices paid sub-component.”

“Today’s index reading suggests that manufacturing activity continues to remain flat,” RBC concludes. “Clearly, the weight of uncertainty brought on by a looming war with Iraq continues to grip U.S. businesses. Although underlying business fundamentals are sound, a sustained recovery in manufacturing will remain an elusive prospect until a resolution to the current Iraq crisis is found.”