Wisconsin Unemployment Rate Forecast

T. Haavelmo Professor

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 May 2011 was 7.4%, staying roughly constant since January, following a steady fall during 2010.

The forecasts are summarized in Figure 1 and Table 1. The point forecast is for the unemployment rate to stay constant for two months, and then decline slowly later this year, dropping to 6.7% by May of 2012. The 80% forecast intervals show that there is considerable additional uncertainty. In particular, there is a possibility that the unemployment rate will increase somewhat over the next several months. There is also a significant probability that the unemployment rate will continue to fall, as low as 5.6% by May of 2012. The 50% forecast intervals refine this uncertainty, showing that it is unlikely that the unemployment rate will rise over the next year, and may indeed fall to as low as 5.8% within a year.

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.

Figure 1: Wisconsin Unemployment Rate Forecasts

TABLE 1: Wisconsin Unemployment Rate Forecasts

	History	Point Forecast	50% Interval Forecast	80% Interval Forecast



2010:11	7.6%
2010:12	7.5%
2011:1	7.4%
2011:2	7.5%
2011:3	7.4%
2011:4	7.3%
2011:5	7.4%
2011:6		7.4%	(7.3%, 7.5%)	(7.3%, 7.5%)
2011:7		7.4%	(7.2%, 7.5%)	(7.1%, 7.6%)
2011:8		7.3%	(7.0%, 7.5%)	(6.9%, 7.7%)
2011:9		7.2%	(6.7%, 7.5%)	(6.6%, 7.7%)
2011:10		7.1%	(6.5%, 7.4%)	(6.4%, 7.7%)
2011:11		7.0%	(6.4%, 7.4%)	(6.2%, 7.7%)
2011:12		6.9%	(6.2%, 7.3%)	(6.1%, 7.7%)
2012:1		6.9%	(6.2%, 7.3%)	(6.0%, 7.7%)
2012:2		6.8%	(6.1%, 7.3%)	(5.9%, 7.8%)
2012:3		6.8%	(6.0%, 7.2%)	(5.8%, 7.8%)
2012:4		6.7%	(5.9%, 7.2%)	(5.7%, 7.8%)
2012:5		6.7%	(5.8%, 7.2%)	(5.6%, 7.9%)