Actual economic data were available through the third quarter of 2019 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 2.66, 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 1.74 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 unchanged from the 2019 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. For a given real rate of growth in average earnings, a higher price inflation rate immediately results in a higher nominal rate of growth in both earnings and revenues, while the resulting added growth in nominal benefit levels occurs with a delay, causing an overall increase (improvement) in the actuarial balance. Similarly, a lower price inflation rate causes an overall decrease in the actuarial balance.The assumed ultimate annual increases in the CPI are 3.00, 2.40, and 1.80 percent for the low-cost, intermediate, and high-cost assumptions, respectively.^{4}These assumptions are 0.2 percentage point lower than in the 2019 report, reflecting the Trustees’ expectation that the Federal Reserve Board’s inflation targets will remain unchanged.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 0.608 in 2018. This ratio is assumed to rise to 0.631 for 2029. For years after 2029, relative sizes of different sectors of the economy are assumed to remain about constant,^{5}and therefore the ratio of total labor compensation to GDP remains at about the 2029 level for each set of assumptions.4. Assumed Real-Wage Differential

Table V.B1.—Principal Economic Assumptions Economic cycles:^{c}

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 0.7 percent per year from 2019 to 2029 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^{6}for 2094 are 73.0, 73.1, and 73.1 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. For women age 16 and over, the projected age-adjusted labor force participation rates for 2094 are 62.1, 61.5, and 60.7 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These age-adjusted labor force participation rates for 2094 are higher under all three alternatives than the age-adjusted rates for 2018 of 71.0 percent for men and 58.8 percent for women (based on actual age-specific rates published by the Bureau of Labor Statistics), primarily due to the Trustees’ projected increases in life expectancy.The total civilian unemployment rates are presented in table V.B2. For years through 2029, the table presents total civilian rates without adjustment for the changing age-sex distribution of the population. For years after 2029, 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 assumed ultimate age-sex-adjusted unemployment rates are 4.0, 5.0, and 6.0 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These values are 0.5 percentage point lower than in the 2019 report, consistent with the Trustees’ belief that unemployment rates and labor force participation rates will both remain below long-term past averages, as mentioned above. The Trustees assume the current favorable labor market conditions will draw more nonparticipants back into the labor force and the unemployment rate will increase from an estimated 3.7 percent for 2019 to the assumed 5.0 percent for 2023 under the intermediate assumptions. Under the low-cost assumptions, the ultimate unemployment rate is reached in 2022. Under the high-cost assumptions, the ultimate unemployment rate is reached in 2028.^{7}The value of real GDP equals the product of three components: (1) average weekly total employment,^{8}(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 2018 was 19.3 percent above the 2007 level. The estimated real GDP growth from 2018 to 2019 is 2.3 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 Economic cycles:^{i}

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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