June 29th, 2012
03:56 PM ET

A reason to be optimistic in today's economy

Watch "Fareed Zakaria GPS" Sunday at 10 a.m. and 1 p.m. ET.

By Fareed Zakaria, CNN

They say that all politics is local. Maybe all economics is local as well.

A sample of Americans were asked how they rated economic conditions.

49% said things were good or excellent in the city that they lived in. That percentage drops to 37% for how Americans feel about their state; it drops to 25% for all of the United States; to 18% for Europe, and only 13% for economic conditions in the world at large.

So the more macro things get, the more despondent people feel. But at a local level — at home — things don't seem too bad.

It got me thinking about housing, the most local of all financial indicators. It's making a comeback.

Recently, we learned that U.S. house prices have now risen for the third straight month. The Case-Shiller index shows that residential prices in 20 key cities increased by seven-tenths of 1 percent in April. Sales of new single-family homes rose by 7.6% — the highest in two years.

The data highlights a trend — and it provides reason to be optimistic for the broader economy. Why?

History shows that in the immediate years following a recession, housing leads the comeback.

Take the first year of the last four American recoveries and the percentage of GDP growth that's attributed to investments in housing. In the last three recoveries, housing provides (on average) one-fifth of the nation's GDP growth following a recession. But 2009 was different; the housing bust kept home sales depressed. (Get more details in the video above)

Even looking at the second year of those recoveries, you see again positive in the previous recoveries, but negative in this one.

That looks ready to change. The latest data suggests that finally, slowly, the U.S. housing market has hit rock bottom and is heading back upwards. Vacancy rates are down, rents are up.

A recovery in housing will have big ramifications: Construction will increase; so will jobs; so will the economy.

For all the doomsday prophesies about the American economy, one reason to remain optimistic in the long run is demographics.

Accounting for births, deaths and new entrants, the U.S. has a net gain of one person every 13 seconds. That works out to about 2.5 million people every year. These people will all need places to live, and so we can actually count on a future growth in housing, construction and therefore those jobs.

Compare our demographics with that of other rich countries. Germany's population is set to decline by 170,000 this year — a trend which will hinder growth in the future. Japan's slowdown is already in large part due to its bad demographics. Its current population is 127 million but it is on pace to drop by a third by 2050. Almost one in four people in Japan are over the age of 65. In the U.S. only 13% of the population is over 65. A fifth are under the age of 14 — a guarantee that we'll have have young dynamic entrants to our workforce for decades.

The crucial factor that explains America's unique advantage is, of course, immigration.

Our fertility rates are not so different from those in Europe. What makes us demographically dynamic is that we take in about a million legal immigrants every year — more than the rest of the world put together. They are going to finally get us out of this sluggish recovery.

More on GPS:
Mexico economy on the rise

How to keep America competitive

Reasons for optimism in today's world

Is democracy part of Europe's economic problems?

What do you think? How do you feel about the economy where you live? Share your comments below.

soundoff (147 Responses)
  1. Puma Girl

    CNN should take note of what we the people, think of Fareed Zakaria. I used to like him but I don't think he is such an authority on all subject matters. Just because you can spin it does not make it true. A little information is a dangerous thing.

    Perhaps CNN should post the credentials of their "journalists" alongside their credits.

    July 1, 2012 at 7:11 pm | Reply
    • wrm

      Hey KITKAT, what are your credentials ?

      July 2, 2012 at 11:43 pm | Reply
  2. theoneone

    This guy is cracked! we are 15 trillion in debt. There will never be any recovery, period!

    July 1, 2012 at 7:16 pm | Reply
  3. J in Boston

    Mr. Zakaria, I usually hate the grammar police, but you are such an intellectual that I cringe when you time and time again misuse the word 'data'. The word 'data' is plural, so when you say "the data suggests", it's like nails on a chalkboard to anyone with a background in science. It's like hearing someone say "The people drives cars"...just doesn't make sense.

    July 1, 2012 at 7:25 pm | Reply
  4. Dennis

    How convenient, its an election year and for Obama to be re-elected the economy needs to be better and CNN now produces stories about how the economy is better. Of course this isnt based on unemployment rate, debt, deficit, or any other TANGIBLE economic indicator, just CNN's desire for 'the One' to be re-elected.

    July 1, 2012 at 7:26 pm | Reply
  5. Chris

    The growth is fueled through immigration-but unfortunately, aside from Asia, the immigrants coming in today are poor and uneducated, and those are the ones having the most children. Not sure what the future holds, when only the poor and uneducated are the ones having the most children. Just who is going to support them in 20 years??

    July 1, 2012 at 7:26 pm | Reply
  6. dave

    It's still the objective of the NWO to crash both American and European economies... and will remain that way until it's "mission accomplished"..it's underway and any hint of "upsurge" including but not limited to housing is very temporary and will be short lived.

    Since this is unavoidable.. enjoy your life, do what you can for your family, yadda yadda,,, because it will take awhile since, such countries as Russia and China are not on board with the NWO, so, they have challenges facing them. (Which is good).

    Conspiracy theory you say?... I wish it was only that.

    July 1, 2012 at 7:29 pm | Reply
    • Patrick-2

      Dave, my islamic confrere, you are reaching for Allah?

      July 1, 2012 at 8:42 pm | Reply
  7. disgustedNY

    Oh yeah, lets hope that housing prices start going up again. It's not enough that every young person I know has to live with their parents until they are 30 because they can't afford a home. Idiot.

    July 1, 2012 at 7:32 pm | Reply
  8. nolongerarepublican

    My area shows that houses are selling pretty well again.
    But don't worry, our weallthy masters are already putting a stop to it.
    The Fed dropped the mortgage rates to the lowest in history which has boosted sales, then then 16 banks including the top 5 who loan on houses, had their credit downgraded the same day the Fed mad the announcement.
    Now the banks say they will have to raise mortgage interest rates.
    Housing will go down again, the economy will go down again, gas prices will be increased, and we will once again be forced into a DEPRESSION so the wealthy (who have made huge fortunes off the depression) will continue to buy up everything they can at low prices.
    Slaves can't win, live with it.

    July 1, 2012 at 7:33 pm | Reply
  9. nolimits3333

    Housing inventory is now down to a 6.5 month supply. 6 months is considered normal. We are back.

    July 1, 2012 at 7:48 pm | Reply
  10. Decmocrat

    The liberal bias of this article is laughable...this coming from a registered Democrat. I know Fareed is trying to stay positive during an election year, and we can try and shine light on what few positive indicators we have. However, the truth of the matter is the economy's performance is poor and getting worse.

    July 1, 2012 at 7:52 pm | Reply
    • Decmocrat

      I cant write, spell or analyze anything.
      I have borderline Schizophrenia.
      The doctors tell me that it means that I could have any of a group of psychotic disorders usually characterized by withdrawal from reality, illogical patterns of thinking, delusions.
      It runs in my family because as a good muslim, my mother married her brother.
      I love my sisters.

      July 2, 2012 at 12:01 pm | Reply
  11. vistarian2011

    100% why I think America will do well after the dusts settle down. Probably from 2014 we can expect 3-5% growth in America's GDP. The huge national railway and structural upgrading projects alone will contribute to America's GDP by at least 30%. And creating jobs for up to 5 million workers.

    Provided Romney is not the President. He has an old habit of sackng workers to cut costs to increase profits.

    July 8, 2012 at 12:03 am | Reply
  12. vistarian2011

    And of course demographically, USA will stay ahead of the rest of the developed country. All the promises of a greater future is dependent on who runs Congress. If its the same bunch of toothless old timers, America will be back to square one for the next 5 years

    Americans must vote with their head and not their hearts. All you need is another Bush Jr as President and we will all be back to carpet bombing some foreign countries, killing innocent civilians, and destroying infrastructures.

    July 8, 2012 at 12:11 am | Reply
  13. Candice

    First, you insult the government and the elected leaders of the USA.
    eg. same bunch of toothless old timers
    Then, you propose a total ban on self-defence
    eg. back to carpet bombing some foreign countries, killing innocent civilians, and destroying infrastructures.
    What is your agenda?

    July 8, 2012 at 10:36 am | Reply
  14. Marco Hsiao

    A reason to be optimistic in today's economy

    Europe is declining; the US Federal debt is exceeding 16 trillion; however, a reason to be optimistic in today's economy:

    China and her neighboring countries are growing strongly. It could be a long term (50 years) trend.

    July 9, 2012 at 1:15 am | Reply
  15. 100 % ETHIO

    Good question.

    July 9, 2012 at 6:51 pm | Reply
  16. Syed Ali

    We should say no to single family homes

    February 10, 2013 at 11:57 pm | Reply
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