Image: BigstockThe world’s biggest economy emerged stronger than expected in the third quarter, defying all the challenges, including the war in Ukraine and the Middle East, as well as persistently higher interest rates. This is especially true as the economy expanded at the fastest pace in nearly two years, with GDP rising 4.9% annually, more than twice from the 2.1% growth recorded in the second quarter.That said, many ETFs will likely benefit from these solid GDP numbers. ETFs like Consumer Discretionary Select Sector SPDR Fund (XLY – Free Report), Vanguard Industrials ETF (VIS – Free Report), iShares U.S. Real Estate ETF (IYR – Free Report), Financial Select Sector SPDR Fund (XLF – Free Report), and Vanguard Small-Cap Growth ETF (VBK – Free Report) are expected to outperform.

Inside the GDP Growth
The solid GDP growth came on the back of an increase in consumer spending, higher inventories, strong exports, higher residential investment, and government spending.Consumer spending, which accounts for more than two-thirds of U.S. economic activity, climbed 4% in the third quarter, up from 0.8% growth in the second quarter. The spending was broad-based across both goods and service sectors.Notably, consumer spending on services like medical appointments and dine-outs, as well as goods like cars and prescription drugs, increased. Spending at restaurants, movie theaters, and sporting events has also risen. A strong labor market and wage growth boosted households’ purchasing power.The manufacturing industry saw a continued boom, with a significant contribution coming from construction spending, especially in the building of houses and factories. This sector made one of the largest contributions to GDP, marking a positive trend for the U.S. economy.Additionally, inflation is steadily easing. The Consumer Price Index rose 3.7% year-over-year in September, flat compared with the August level. Although inflation is still significantly above the Fed’s 2% target, it has dropped from a peak of 9.1%. On a month-over-month basis, inflation decelerated from 0.6% to 0.4%.However, the breakneck pace of growth is expected to ease, as higher long-term borrowing rates coupled with the Fed’s short-term rate hikes will cool down spending by businesses and consumers. Additionally, a declining saving rate and the resumption of student loan repayments could potentially dent spending in the upcoming quarters.Earlier in the month, the International Monetary Fund raised its U.S. growth projection for 2023 by 0.3 percentage points to 2.1%.

ETFs to Tap – Consumer Discretionary Select Sector SPDR Fund (XLY – Free Report)
Solid economic growth will have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending. As such, investors could tap the encouraging trend in the basket form through the ultra-popular Consumer Discretionary Select Sector SPDR Fund.It offers exposure to the broad consumer discretionary space by tracking the Consumer Discretionary Select Sector Index. Holding 53 securities in its basket, XLY charges 10 bps in annual fees.The fund has AUM of $15.7 billion and an average daily volume of about 5 million shares. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Vanguard Industrials ETF (VIS – Free Report)
This ETF offers exposure to the broad industrial sector and follows the MSCI US IMI Industrials 25/50 Index. A rise in business investments will fuel growth in the industrial sector, which makes VIS appealing. It holds about 384 securities in its basket, with none accounting for more than 3.4% of the assets. From an industrial look, aerospace and defense takes the top spot at 15.3%, followed by industrial machinery, supplies, & components at 10.7%.The ETF manages $4 billion in its asset base, and it charges 10 bps in annual fees. Volume is moderate as the product exchanges 86,000 shares a day on average. VIS has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares U.S. Real Estate ETF (IYR – Free Report)
Rebounding residential investment will benefit the real estate sector. This ETF offers exposure to real estate companies and REITs, which invest in real estate directly and trade like stocks. It follows the Dow Jones U.S. Real Estate Capped Index. The ETF holds a basket of 73 securities with key holdings in telecom tower REITs, industrial REITs, and retail REITs.It has amassed $2.5 billion in its asset base while trading in a heavy volume of 7 million shares a day on average. The ETF charges 40 bps in annual fees, and it has a Zacks ETF Rank #3 (Hold).

Financial Select Sector SPDR Fund (XLF – Free Report)
A robust economy can lead to more investments and financial activities. The ultra-popular Financial Select Sector SPDR Fund ETF seeks to provide exposure to 72 companies in diversified financial services, insurance, banks, capital markets, mortgage real estate investment trusts, consumer finance, and thrifts and mortgage finance industries. It follows the Financial Select Sector Index, charging investors 10 bps in fees per year.The ETF has AUM of $29 billion, and it trades in an average daily volume of 42 million shares. It carries a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Vanguard Small-Cap Growth ETF (VBK – Free Report)
Small-cap stocks generally lead the way higher on improving American economic health, as these are closely tied to the U.S. economy and generate most of their revenues from the domestic market. VBK, which tracks the CRSP US Small Cap Growth Index, appears to be an excellent choice.From a sector viewpoint, technology takes the top spot at 22.2% while industrials, healthcare, and consumer discretionary round off the next three spots, with double-digit exposure each.The product has amassed $12.8 billion in its asset base while trading in a solid volume of around 199,000 shares. It charges 7 bps in fees per year, and it has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.More By This Author:5 Low-Risk ETFs To Buy Amid Historic Bond Turmoil4 ETF Areas To Benefit From Escalating Middle East ConflictGold Mining ETFs Shine On Safe Haven Rush