The widening U.S. trade deficit acted as a brake on economic growth in the fourth quarter.

The U.S. Commerce Department said today that U.S. gross domestic product increased at a 3.1% annual rate in October through December, lagging the third-quarter’s 4% growth and the second-quarter’s 3.3% climb. It was the lowest rate of growth since the economy rose 1.9% in the first quarter of 2003.

The full-year picture was more encouraging. For all of 2004, GPD advanced 4.4%, its best performance since 1999, when GDP rose 4.5%. GDP expanded 3% during 2003 and 1.9% in 2002.

The trade deficit shaved 1.73 percentage points off growth in the fourth quarter. U.S. exports dropped by 3.9% during the quarter while imports advanced by 9.1%. That reversed the third-quarter trade balance, when exports increased 6% and imports went up 4.6%.

Consumer spending, which accounts for about two-thirds of economic activity, stayed strong in the fourth quarter, rising 4.6%. However, that still trailed the previous quarter’s 5.1% pace.

Separately, a report from the U.S. Labor Department showed that the cost of hiring and retaining U.S. workers grew at a slower pace in the fourth quarter than it did in the third, suggesting the economic recovery isn’t pushing up inflation.