Actual economic data were generally available through the third quarter of 2023 at the time the assumptions for this report were set. Those data indicate that economic activity reached a peak in the fourth quarter of 2019.
1 A recession started in the first quarter of 2020 due to the precipitous decline in economic activity in March resulting from the onset of the COVID-19 pandemic, continuing into April, leading to the gross domestic product (GDP) in the second quarter of 2020 being more than 9 percent below the peak in the fourth quarter of 2019, expressed in constant 2017 dollars. GDP recovered rapidly, surpassing the fourth quarter 2019 peak in the first quarter of 2021. In the third quarter of 2023, GDP was about 7 percent above the previous peak.
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 six complete economic cycles (1969-73, 1973-79, 1979-90, 1990-2001, 2001‑07, and 2007-19, measured peak to peak), the annual increase in total-economy productivity averaged 2.64, 1.06, 1.39, 1.84, 2.15, and 1.20 percent, respectively. For the period from 1969 to 2019, covering those last six complete economic cycles, the annual increase in total-economy productivity averaged 1.59 percent.
The assumed ultimate annual increase in total-economy productivity is 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 2023 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 annual increase in the CPI averaged 4.91, 8.54, 5.30, 2.73, 2.63, and 1.73 percent over the economic cycles 1969-73, 1973-79, 1979-90, 1990‑2001, 2001-07, and 2007-19, respectively.
4 The annual increase in the GDP deflator averaged 5.04, 7.54, 4.62, 2.08, 2.52, and 1.56 percent for the respective economic cycles. For the period from 1969 to 2019, covering the last six complete economic cycles, the annual increase averaged 3.89 percent for the CPI and 3.44 percent for the GDP deflator. The annual rate of change for 2020, which was affected by the recession, was 1.21 percent for the CPI and 1.34 percent for the GDP deflator. During the subsequent recovery, aggregate demand increased while supply was constrained, leading to 2021 and 2022 growth rates of 5.26 and 8.46 percent for the CPI and 4.57 and 7.05 percent for the GDP deflator, respectively. The estimated annual growth rates for 2023 are still elevated but are significantly lower than in 2021 and 2022, at 3.86 percent for the CPI and 3.76 percent for the GDP deflator.
The size of the taxable payroll—the main source of the OASDI program’s income—for each year depends primarily on the nominal earnings in OASDI covered employment, which is the product of covered employment
5 for the year and average covered earnings for the year. The level of average covered earnings also affects the future level of average benefits. In addition, the average reported annual wage in the U.S. economy determines the national average wage index (AWI). Under the automatic adjustment provisions in the law, the growth in the AWI affects the contribution and benefit base, certain parameters used in the OASDI benefit formula, and certain other program parameters.
6 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 six complete economic cycles from 1969 to 2019, this ratio averaged 0.621, but it was lower over the last complete cycle from 2007 to 2019, averaging 0.605. The ratio increased to 0.618 for 2020, but declined in subsequent years, and is estimated to be 0.589 for 2023. It is projected to gradually rise to reach 0.628 by 2033 under the intermediate assumptions. For years after 2033, the relative sizes of different sectors of the economy are assumed to remain about constant,
7 and therefore the ratio of total labor compensation to GDP remains at about the 2033 level for each set of assumptions.
For men and boys age 16 and over, the projected age-adjusted labor force participation rate
8 for 2098 is 70.9, 70.7, and 70.3 percent for the low-cost, intermediate, and high-cost assumptions, respectively. For women and girls age 16 and over, the projected age-adjusted labor force participation rate for 2098 is 61.5, 61.3, and 61.2 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These age-adjusted labor force participation rates for 2098 are higher under all three alternatives than the age-adjusted rates for 2022 of 68.4 percent for men and boys and 57.1 percent for women and girls (based on actual age-specific rates published by the Bureau of Labor Statistics), primarily due to the Trustees’ projected increases in life expectancy, as well as the rise in educational attainment for women.
The aggregate civilian unemployment rates are presented in table V.B2. For years through 2033, the table presents aggregate civilian rates without adjustment for the changing age-sex distribution of the population. For years after 2033, the table presents age-sex-adjusted rates, using the age-sex distribution of the 2020 civilian labor force. Age-sex-adjusted rates allow for more meaningful comparisons across longer time periods.
The assumed ultimate age-sex-adjusted unemployment rate is 3.5, 4.5, and 5.5 percent for the low-cost, intermediate, and high-cost assumptions, respectively. These values are unchanged from the 2023 report.
9 Under the intermediate assumptions, as economic growth slows to approach the sustainable long-term trend, the unemployment rate increases gradually from 3.6 percent for 2023 to 4.5 percent for 2026 and thereafter. Under the low-cost assumptions, the unemployment rate is projected to rise to 3.7 percent for 2024, and then decline to the ultimate unemployment rate of 3.5 percent for 2025 and thereafter. Under the high-cost assumptions, due to the assumed economic recession, the unemployment rate increases to 6.5 percent for 2026, with the age-sex-adjusted rate then gradually decreasing to the ultimate unemployment rate of 5.5 percent for 2032 and thereafter.
10The value of real GDP is equal to the product of three components: (1) productivity (i.e., output per hour worked), (2) average weekly total employment,
11 and (3) average hours worked per week, times 52. Consequently, the growth rate in real GDP is equal to the combined growth rates for productivity, total employment, and average hours worked. For the period from 1969 to 2019, which covers the last six complete economic cycles, the average annual growth in real GDP was 2.76 percent, combining average growth rates of 1.59 percent for productivity, 1.35 percent for total employment, and ‑0.20 percent for average hours worked (1.0276 = 1.0159 × 1.0135 × 0.9980). The real GDP growth rate was ‑2.2 percent for 2020, 5.8 percent for 2021, 1.9 percent for 2022, and is estimated to be 2.4 percent for 2023 under the intermediate assumptions.
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 compounded semiannually, or at redemption if sooner. 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.
