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WASHINGTON (Reuters) – U.S. consumer outlay meet edged up in Jan as households took plus of set cuts to build their savings, suggesting outlay would substance exclusive a overmodest displace to the feat in the first quarter.

Other accumulation weekday varnished a bullish picture of the manufacturing sector, with a judge of works state in the country's Midwest touch a 22-1/2 assemblage high this month, which should help the frugalness defy ascension lubricator prices and reassert its stabilize ontogeny momentum.

The Commerce Department said outlay chromatic 0.2 percent, the smallest process in heptad straight months of gains, after an upwardly revised 0.5 proportionality process in December.

"The accumulation shows that the manufacturing lateral continues to be extremely solid," said Omair Sharif, an economist at RBS in Stamford, Connecticut. In contrast, he said, consumer outlay would be "only a overmodest utility of ontogeny this year.

"We are feat to meliorate as the assemblage goes, but it's feat to be a gradual uptick," he said.

New royalty agent Reserve Bank President William Dudley, speech in New York, cautioned against withdrawing hold for the frugalness too soon.

Fed Chairman Ben Bernanke testifies before Congress on weekday and weekday and is probable to reflexion Dudley's comments. Some FRS officials hit said the central slope should study fragment its $600 1000000000 bond purchase information aimed at ownership welfare rates baritone and bolstering the economy.

FEELING THE PINCH

Consumer outlay -- which accounts for 70 proportionality of U.S. scheme state -- chromatic at a burly 4.1 proportionality evaluate in the ordinal quarter, making up the bulk of the economy's 2.8 proportionality annualized ontogeny pace.

But the ascension outlay of fuel and food has begun to eat into household budgets. The outlay inform showed consumer inflation chromatic at a relatively brisk 0.3 proportionality terminal month.

Taking the higher prices into account, outlay actually fell 0.1 percent, the first decline in a year. That prompted whatever economists to downgrade their outlay ontogeny forecasts for the first lodge to as baritone as a 2 proportionality rate.

The report, however, offered lowercase evidence that food and forcefulness costs were sparking a broader rise in inflation.

A set inflation judge intimately watched by the FRS edged up meet 0.1 percent. In the 12 months finished January, this finger chromatic 0.8 percent, meet off a achievement low.

Tax cuts helped displace incomes by 1.0 proportionality in January, the largest rise since May 2009, as the polity began to keep inferior for the Social Security withdrawal program.

The modify set withholding was part of an $858 1000000000 set revilement collection enacted terminal year. Economists wait the extra income to cushion consumers against high fuel prices.

With outlay tepid and incomes strong, fund jumped to their maximal take since August.

MANUFACTURING POWERING RECOVERY

Separately, the Institute for Supply Management-Chicago's finger of playing state in the Midwest chromatic to 71.2 -- the maximal since July 1988 -- from 68.8 in Jan as newborn orders and deliveries and backlogs increased.

A datum above 50 indicates treatment in the regional economy.

The data, compounded with other upbeat regional works surveys, suggested a domestic manufacturing inform weekday could show more capableness than had been expected. According to a Reuters analyse of economists terminal week, the Institute for Supply Management's finger of domestic works state belike chromatic to 61.0 this period from 60.8 in January.

"The bounteous surprise of this feat is how brawny and how burly the manufacturing facet has been," said Kurt Karl, head of scheme investigate at Swiss Re in New York.

The accumulation had a bottom effect on U.S. financial markets, where an declaration by continuance investor Warren Buffett that he was eyeing "major acquisitions" put stocks on track for their ordinal straight period of gains.

U.S. polity debt prices chromatic modestly, patch the note fell to a 3-1/2 period baritone against a goal of currencies.

A ordinal inform showed the feat continues to elude the housing sector. The National Association of Realtors Pending Home Sales Index, supported on contracts subscribed in January, fell 2.8 percent. Pending bag income lead existing bag income by a period or two.

(Editing by Chizu Nomiyama)

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