Consumer spending again played a key role in boosting the economy in the second quarter. According to the “advance estimate” released by the U.S. Department of Commerce last week, the second quarter GDP rose 2.3%, compared to the revised 0.6% growth rate witnessed in the first quarter. The catalyst's effect is likely to sustain for the next few quarters.

The positive momentum of the consumer sector was also reflected in statements made after the latest Federal Open Market Committee's (FOMC) two-day policy meeting. The policy makers said that “economic activity has been expanding moderately in recent months” and that there has been “moderate” improvement in consumer spending levels along with an “additional improvement” in the housing market.

Given this bright outlook, investing in retail-focused mutual funds with strong fundamentals may prove to be profitable as a major part of consumer expenditures goes to this sector.

Factors Driving the Recovery

Real personal consumption expenditure rose 2.9% during the quarter, higher than the first quarter's growth rate of 1.8%. A solid gain in consumer spending, which contributes more than 75% to economic activity, emerged as the main driver behind the economic recovery.

Moreover, real exports during the quarter increased 5.3%, in contrast to the 6% fall in the first quarter. Imports of goods and services rose at a pace of 3.5%, lower than 7.1% increase in the previous quarter. The trade gap contributed nearly 0.13% to the GDP number during the quarter, comparing favorably with first quarter wherein a decline in exports had a negative 1.92% impact on the GDP rate.

Additionally, the personal consumption expenditure (PCE) price index increased at the highest pace in more than three years during the quarter. The index gained 2.2% during the quarter, compared to first quarter's 1.9% decline. The index, when measured excluding food and energy prices, rose 1.8% in the quarter.