U.S. downgrades estimate of Q4 GDP growth to 2.2%

The U.S. Commerce department has revised downwards its estimate of GDP growth in the 4th quarter of 2014, from 2.6 per cent to 2.2 per cent.

A worsening of the U.S. trade deficit and slower business inventory growth than expected both helped contribute to the lower figure. The high U.S. dollar is making U.S. goods more expensive overseas and encouraging more imports.

However, consumer spending, which accounts for 70 per cent of economic activity, expanded at anannual rate of 4.2 per cent, its best showing since the first quarter of 2006.

That may indicate that lower gas prices are leaving consumers with more cash to spend on other goods.

In the third quarter of 2014, the U.S. experienced the strongest growth in 11 years at five per cent and so the 2.2 per cent final quarter growth marks a sharp slowdown.

However, it had been expected, analysts said. The U.S. makes at least three estimates of GDP growth as it refines its data.

"The downward revision to fourth quartereconomicgrowth was expected. The good news is that the number was not as bad as anticipated, largely on a smaller than anticipated drag from net-exports," said TD Bank senior economist James Marple.

"What is more, final domestic demand spending by American households and businesses was revised up to 3.2 per centand has now grown above 3 per centfor three straight quarters," Marple said.

For all of 2014, the economy expanded 2.4 per cent, up slightly from 2.2 per cent growth in 2013.

Marple said he expects consumer spending to continue driving U.S. growth in 2015, but warned there could be a drag from labour productivity.

Fed chair Janet Yellen has also flagged problems in the labour market, including slow wage growth.

There are signs that companies are moving on wages as the U.S. unemployment rate dips to 5.7 per cent.

Retailers TJX, The Gap and big employer Walmart have all said they intend to raise the wages of their workers to about the $9 an hour level.

Thats well short of the $15 an hour workers rights groups have demanded for people in low-wage jobs.