19 May 2016
This memo reports a 12-month forecast for the seasonally
adjusted Wisconsin unemployment rate. In addition to point forecasts (the
expected future value of the unemployment rate), the memo also reports 50% and
80% forecast intervals (probable ranges for future values).
The unemployment rate in March 2016 was 4.5%, a slight
decrease from February, and roughly constant since March 2015.
The forecasts are summarized in Figure 1 and Table 1. The
point forecast is for the unemployment rate to stay roughly constant for five
months, and then slowly increase for the next seven months, to 5.2% by March
2017. The 80% forecast intervals show that there is considerable additional
uncertainty. There is a possibility that the unemployment rate could increase
as high as 6.5% by March 2017. It is also possible that the unemployment rate
could decrease, to 3.9% by March 2017. The 50% forecast intervals refine this
uncertainty, showing that it is unlikely the unemployment rate will decrease, or
increase to over 5.2% by the end of 2016. Overall, the forecast is for the
unemployment rate to increase over the next year, at least mildly and possibly
significantly.
A 50% forecast interval is designed to contain the future
unemployment rate with 50% probability. It is just as likely for the rate to
fall in this interval as out of it. This is the smallest possible interval
which has even odds of containing the future rate. We can think of this
interval as “likely” to contain the future rate.
An 80% forecast interval is designed to contain the future
unemployment rate with 80% probability. We can think of this interval as
“highly likely” to contain the future rate. The 80% interval is designed so
that there is a 10% chance that the future value will be smaller than the
forecast interval, and a 10% chance that the future value will be larger than
the forecast interval.
To understand the economic reason behind these forecasts, the
econometric model finds two salient features. First, the state unemployment rate
is below its long-term average. Mean reversion predicts a slight increase,
accounting for an increase of about 0.3 over the upcoming year. Second,
building permits are lower than average in the Midwest, predicting an increase
of about 0.4% over the year. The other components in the econometric model have
only minor impacts on the current forecast.
Figure 1: Wisconsin Unemployment Rate Forecasts
TABLE 1: Wisconsin
Unemployment Rate Forecasts
|
History |
Point Forecast |
50% Interval Forecast |
80% Interval Forecast |
2015:9 |
4.3% |
|
|
|
2015:10 |
4.3% |
|
|
|
2015:11 |
4.3% |
|
|
|
2015:12 |
4.6% |
|
|
|
2016:1 |
4.6% |
|
|
|
2016:2 |
4.6% |
|
|
|
2016:3 |
4.5% |
|
|
|
2016:4 |
4.4% |
(4.4%, 4.4%) |
(4.4%, 4.5%) |
|
2016:5 |
4.4% |
(4.4%, 4.5%) |
(4.3%, 4.5%) |
|
2016:6 |
4.5% |
(4.4%, 4.6%) |
(4.3%, 4.6%) |
|
2016:7 |
4.5% |
(4.4%, 4.7%) |
(4.2%, 4.8%) |
|
2016:8 |
4.6% |
(4.4%, 4.7%) |
(4.3%, 4.9%) |
|
2016:9 |
4.7% |
(4.5%, 4.8%) |
(4.3%, 5.0%) |
|
2016:10 |
|
4.7% |
(4.5%, 4.9%) |
(4.3%, 5.1%) |
2016:11 |
|
4.8% |
(4.5%, 5.1%) |
(4.3%, 5.3%) |
2016:12 |
|
4.9% |
(4.5%, 5.2%) |
(4.2%, 5.6%) |
2017:1 |
|
5.0% |
(4.5%, 5.4%) |
(4.1%, 5.9%) |
2017:2 |
|
5.1% |
(4.4%, 5.6%) |
(4.0%, 6.3%) |
2017:3 |
|
5.2% |
(4.4%, 5.7%) |
(3.9%, 6.5%) |
Previous Forecasts