The U.S. economy grew faster at the end of 2004 than earlier thought. The U.S. Commerce Department said today that gross domestic product increased in the fourth quarter at a 3.8% annual pace, higher than the 3.1% rate initially estimated.

The revised GDP figure was in line with what economists had expected.

GDP grew 4% in the third quarter and 3.3% in the second. For all of 2004, GDP increased 4.4%, faster than 2003’s 3% advance and 2002’s 1.9% climb.

A slightly more favorable reading on the balance on trade helped drive the Q4 GDP figure higher. Exports rose by 2.4%, while imports increased by 11.4%.

Commerce originally projected exports as falling 3.9% and imports rising 9.1%. Erroneous trade data supplied to the Commerce Department by Canada’s main statistical agency had helped make the trade picture look considerably worse than it actually was in the initial Jan. 28 report on fourth-quarter GDP.

Still, the trade deficit remained a significant drag on growth, shaving 1.43 percentage points off overall GDP.

Higher inventory investments also supported improved growth. Businesses expanded their stocks by US$51 billion, revised upward from the originally reported $45.8 billion and far greater than the third quarter’s US$34.5 billion increase. The US$16.5 billion quarter-to-quarter change added six tenths of a percentage point to GDP. Overall business spending rose 14%, up from the initially estimated 10.3% increase.

Not all of the revisions in Friday’s report were for the better. Consumer spending, which accounts for about 70% of all economic activity, climbed 4.2%, down from the 4.6% pace previously reported and lower than the third quarter’s 5.1% gain. Purchases of durable goods increased 3.1% and non-durables rose 6.1%; originally, durables were seen rising 6.7% and non-durables up 5.8%.