Consumers lowered the pace of saving to increase their purchases as incomes declined, the report showed. The savings rate last quarter dropped to 4.1 percent, the lowest since the last three months of 2007. After-tax incomes adjusted for inflation decreased at a 1.7 percent annual rate, the biggest drop since the third quarter of 2009.

McDonald's Corp., the world's biggest restaurant chain, is among companies trying to keep prices down to attract budget- conscious customers. The Oak Brook, Illinois-based company this month said third-quarter profit gained 8.6 percent.

"The environment out there is still fragile," James Skinner, McDonald's vice-chairman and chief executive officer, said in an Oct. 21 call with analysts. "Consumers everywhere continue to be cautious and hesitant to spend."

One bright spot last quarter was business investment. Corporate spending on equipment and software climbed at a 17.4 percent pace, the most in a year. It contributed 1.2 percentage point to growth.

The pickup in investment didn't translate into more jobs. Payrolls rose by an average 96,000 workers per month last quarter, down from the 166,000 average in the first quarter.

A Labor Department report today showed that fewer Americans filed applications for unemployment assistance last week, signaling limited improvement in the labor market.

First-time jobless claims decreased by 2,000 to 402,000 in the week ended Oct. 22. The number of people collecting unemployment benefits fell in the prior week by 96,000 to 3.65 million, the fewest since September 2008.

President Barack Obama proposed last month a $447 billion plan to stimulate jobs, which included expanding a payroll tax break due to expire at the end of this year, increasing spending on public works and extending jobless benefits.

Obama yesterday said he is seeking ways to take action without congressional approval after the Senate blocked the measure earlier this month. The steps include altering a program to help homeowners refinance mortgages and easing the burden of student loans.

Fed policy makers are developing options for further monetary easing even as the economy picks up.