Actual economic data were available through the third quarter of 2015 at the time the Trustees set the assumptions for this report. The data indicated that economic activity peaked in the fourth quarter of 2007
1 with the level of gross domestic product (GDP) about 1 percent above the estimated long-term sustainable trend level. A severe recession followed, with a low point in the economic cycle reached in the second quarter of 2009 with 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 strong as in most past recoveries. The Trustees project that the economy will return to its sustainable trend level of output within the first 10 years of the projection period and remain on that trend thereafter. However, the speed of the return varies by alternative. The economy is projected to return to its sustainable trend level of output by 2022 for the intermediate assumptions, and 2020 for the low-cost assumptions, the same as in last year’s report. The economy is projected to return to its sustainable trend level of output by 2025 for the high-cost assumption, about 1 year later than in last year’s report. Complete economic cycles have little effect on the long-range estimates of financial status, so the assumptions do not include cycles beyond the short-range period (2016 through 2025).
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 in the growth of average earnings. Over the last five complete economic cycles (1966-73, 1973-79, 1979-89, 1989-2000, and 2000-07, measured peak to peak), the annual increases in total productivity averaged 2.27, 1.10, 1.38, 1.78 and 2.15 percent, respectively. For the 41-year period from 1966 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 1.98, 1.68, and 1.38 percent for the low-cost, intermediate, and high-cost assumptions, respectively.
3 These rates of increase are unchanged from the 2015 report.
Future changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI) will directly affect the OASDI program through the
automatic cost-of-living benefit increases. Future changes in the GDP price index (GDP deflator) affect the nominal levels of GDP, wages, self-employment income, average earnings, and
taxable payroll.
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 GDP deflator,
4 the Trustees lowered the assumed ultimate annual rate of increase in the CPI for the intermediate case from 4.0 percent for the 1996 report to 2.8 percent for the 2004 through 2013 reports, to 2.7 percent for the 2014 and 2015 reports, and to 2.6 percent for this report.
For men age 16 and over, the projected age-adjusted labor force participation rate
5 for 2090 is 72.9, 73.0, and 72.9 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 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.
6 For women age 16 and over, the projected age-adjusted labor force participation rates for 2090 are 61.6, 61.0, and 60.1 percent for the low-cost, intermediate, and high-cost assumptions, respectively. The age-adjusted rates for 2090 are higher under all three alternatives than the age-adjusted rates for 2014 of 70.1 percent for men and 57.7 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. In the first ten years, the assumed labor force participation rates also increase as the economic recovery draws more people into the labor force. Increasing disability prevalence rates offset these increases somewhat in the intermediate and high-cost assumptions, but a decrease in disability prevalence further contributes to increases in labor force participation in the low-cost assumptions.
The unemployment rates presented in table V.B2 are in the most commonly cited form, the civilian rate. For years through 2025, the table presents total civilian rates without adjustment for the changing age-sex distribution of the population. For years after 2025, the table presents unemployment rates as 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 age-sex adjusted unemployment rate is about 0.1 percentage point lower than the unadjusted rate for 2026.
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.
7 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 ultimate assumed 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 2015 report. The decline in the overall rate from 5.3 for 2015 to 5.1 for 2016 under intermediate assumptions reflects a rapid increase in employment with a relatively small change in labor force participation. Improvements in labor market conditions will eventually draw more nonparticipants back into the labor force and unemployment will reach the ultimate rate in 2020 under the intermediate assumptions. Under low-cost assumptions the ultimate unemployment rate is reached in 2018. Under the high-cost assumptions, unemployment will reach the ultimate rate in 2022.
8The value of real GDP equals the product of three components: (1) average weekly total employment,
9 (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 1966 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, 1.7, and ‑0.3 percent for total employment, productivity, and average hours worked, respectively. As a result of the 2007‑2009 recession, the real GDP in 2014 was only 7.3 percent above the 2007 level. The estimated real GDP growth from 2014 to 2015 is 2.5 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.
