The U.S. economy didn’t expand as much at the end of 2006 as originally thought, according to new data showing a sharp downward adjustment to fourth-quarter growth partly because of lower business inventory investment.

Gross domestic product increased at a 2.2% annual rate October through December, the U.S. Commerce Department said today in its first revision to GDP growth during the last three months of 2006.

Revisions to inflation gauges within the report were mixed. The government’s price index for personal consumption decreased 0.9%, below the previously estimated 0.8% decline and below the third quarter’s 2.4% climb. The personal consumption price gauge excluding food and energy rose 1.9%, below the previously estimated 2.1% increase and below the third quarter’s 2.2% climb.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, went up 0.2%, above the previously estimated 0.1% rise but below the third quarter’s 2.2% climb. The chain-weighted GDP price index rose 1.7%, above the previously estimated 1.5% rise but below the third quarter’s 1.9% climb.

The government initially estimated GDP grew by 3.5% in the fourth quarter. The new estimate of a 2.2% seasonally adjusted gain meant the economy was just a little stronger than in the third quarter, when GDP rose 2%.

Lower inventory investment, higher imports and slightly weaker consumer spending led to the downward revision to GDP, which is a measure of all goods and services produced in the economy.

Today’s adjustment didn’t surprise Wall Street; economists had previously forecast a 2.2% increase in Q4 GDP growth.

Today’s report showed businesses increased inventories by only US$17.3 billion; originally, Commerce estimated a US$35.3 billion increase.