Actual economic data were available through the third quarter of 2018 at the time the assumptions for this report were set. The data indicated that economic activity peaked in the fourth quarter of 2007.^{1}A severe recession followed, with a low point in the economic cycle reached in the second quarter of 2009 with gross domestic product (GDP) about 7 percent below the estimated sustainable trend level. The annual growth rate in real GDP has been positive in all years since then, but not as rapid as in most past recoveries.Total U.S. economy productivity is defined as the ratio of real GDP to hours worked by all workers.^{2}The rate of change in total-economy productivity is a major determinant of the growth of average earnings. Over the last five complete economic cycles (1969-73, 1973-79, 1979-90, 1990-2001, and 2001-07, measured peak to peak), the annual increases in total-economy productivity averaged 2.65, 1.07, 1.41, 1.85, and 2.19 percent, respectively. For the period from 1969 to 2007, covering those last five complete economic cycles, the annual increase in total-economy productivity averaged 1.73 percent.The assumed ultimate annual increases in total-economy productivity are 1.93, 1.63, and 1.33 percent for the low-cost, intermediate, and high-cost assumptions, respectively.^{3}These rates of increase are 0.05 percentage point lower than in the 2018 report.Changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI) directly affect the OASDI program through the automatic cost-of-living benefit increases. Changes in the GDP price index (GDP deflator) affect the nominal levels of GDP, wages, self-employment income, average earnings, and taxable payroll.The assumed ultimate annual increases in the CPI are 3.20, 2.60, and 2.00 percent for the low-cost, intermediate, and high-cost assumptions, respectively.^{4}These assumptions are unchanged from the 2018 report. For a given rate of growth in average real earnings, a higher price inflation rate results in faster nominal earnings and revenue growth immediately, while the resulting added growth in benefit levels occurs with a delay, causing an overall improvement in the actuarial balance. Similarly, a lower price inflation rate causes an overall decline in the actuarial balance.The Federal Reserve Board’s monetary policy changed in the 1980s toward more vigilance in preventing high inflation. Consistent with the Board’s continued emphasis on containing inflation, as indicated by their current target for the Personal Consumption Expenditures (PCE) price index,^{5}the Trustees lowered the assumed ultimate annual rate of increase in the CPI for the intermediate assumptions from 4.00 percent for the 1996 report to 2.80 percent for the 2004 through 2013 reports, to 2.70 percent for the 2014 and 2015 reports, and to 2.60 percent for the 2016 through 2019 reports.The average level of nominal earnings in OASDI covered employment for each year has a direct effect on the size of the taxable payroll and on the future level of average benefits. In addition, under the automatic adjustment provisions in the law, growth in the average wage in the U.S. economy directly affects certain parameters used in the OASDI benefit formulas as well as the contribution and benefit base, the exempt amounts under the retirement earnings test, the amount of earnings required for a quarter of coverage, and in certain circumstances, the automatic cost-of-living benefit increases.The ratio of total labor compensation (i.e., employee compensation and net proprietors’ income) to GDP varies over the economic cycle and with changes in the relative sizes of different sectors of the economy. Over the last five economic cycles from 1969 to 2007, this ratio has averaged 0.627. The ratio declined from 0.649 for 2001 to 0.602 in 2009, increased to 0.612 in 2012, and is 0.611 in 2017. This ratio is assumed to rise as the economy recovers, reaching a level of 0.632 for 2028. For years after 2028, relative sizes of different sectors of the economy are assumed to remain about constant,^{6}and therefore the ratio of total labor compensation to GDP remains at about the 2028 level for each set of assumptions. The ultimate level of this ratio is 0.001 higher than in last year’s report due to an upward revision of proprietors’ income in the NIPA.^{7}4. Assumed Real-Wage Differential

Table V.B1.—Principal Economic Assumptions

The annual rate of growth in the size of the labor force decreased from an average of about 2.6 percent during the 1969-73 economic cycle and 2.7 percent during the 1973-79 cycle to 1.7 percent during the 1979-90 cycle, 1.2 percent during the 1990-2001 cycle, and 1.1 percent during the 2001‑07 cycle. Further slowing of labor force growth is expected to follow from a substantial slowing of growth in the working age population in the future — a consequence of the baby-boom generation reaching retirement ages and succeeding lower-birth-rate cohorts reaching working ages. Under the intermediate assumptions, the labor force is projected to increase by an average of 0.8 percent per year from 2018 to 2028 and 0.4 percent per year over the remainder of the 75‑year projection period.For men age 16 and over, the projected age-adjusted labor force participation rates^{8}for 2093 are 73.3, 73.3, and 73.0 percent for the low-cost, intermediate, and high-cost assumptions, respectively. The low-cost assumptions result in a larger working-age population and a larger labor force when compared to the intermediate assumptions, but a slightly lower labor force participation rate for men. This occurs because the low-cost assumptions include shorter life expectancies and relatively higher numbers of never-married individuals in the population. Shorter life expectancies tend to reduce work at older ages, while labor force participation rates tend to be lower for never-married men and higher for never-married women compared to their married counterparts.^{9}For women age 16 and over, the projected age-adjusted labor force participation rates for 2093 are 62.3, 61.7, and 60.8 percent for the low-cost, intermediate, and high-cost assumptions, respectively.The total civilian unemployment rates are presented in table V.B2. For years through 2028, the table presents total civilian rates without adjustment for the changing age-sex distribution of the population. For years after 2028, the table presents age-sex-adjusted rates, using the age-sex distribution of the 2011 civilian labor force. Age-sex-adjusted rates allow for more meaningful comparisons across longer time periods.The total civilian unemployment rate reflects the projected levels of unemployment for various age-sex groups of the population. Each group’s unemployment rate is projected in relation to changes in the economic cycle, as measured by the ratio of actual to potential GDP.^{10}For each alternative, the total civilian unemployment rate moves toward the ultimate assumed rate as the economy moves toward the long-range sustainable growth path.The assumed ultimate age-sex-adjusted unemployment rates are 4.5, 5.5, and 6.5 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These values are unchanged from the 2018 report. Improvements in labor market conditions will eventually draw more nonparticipants back into the labor force and unemployment rate will increase from an estimated 3.9 percent for 2018 to the assumed 5.5 percent for 2023 under the intermediate assumptions. Under the low-cost assumptions, the ultimate unemployment rate is reached in 2022.^{11}Under the high-cost assumptions, the ultimate unemployment rate is reached in 2025.The value of real GDP equals the product of three components: (1) average weekly total employment,^{12}(2) productivity, and (3) average hours worked per week. Consequently, the growth rate in real GDP is approximately equal to the sum of the growth rates for total employment, productivity, and average hours worked. For the period from 1969 to 2007, which covers the last five complete economic cycles, the average growth rate in real GDP was 3.1 percent. This average growth rate approximately equals the sum of the average growth rates of 1.6 percent for total employment, 1.7 percent for productivity, and ‑0.3 percent for average hours worked. The real GDP for 2017 was 15.5 percent above the 2007 level. The estimated real GDP growth from 2017 to 2018 is 2.9 percent.Table V.B2 presents average annual nominal and real interest rates for newly issued trust fund securities. The nominal rate is the average of the nominal interest rates for special U.S. Government obligations issuable to the trust funds in each of the 12 months of the year. Interest for these securities is generally compounded semiannually. The real interest rate is defined as the annual yield rate for investments in these securities divided by the annual rate of growth in the CPI for the first year after issuance. The real rate shown for each year reflects the actual realized (historical) or expected (future) real yield on securities issuable in the prior year.

Table V.B2.—Additional Economic Factors

The average of the nominal interest rates, compounded semiannually, for special public-debt obligations issuable to the trust funds in each of the 12 months of the year.

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