1 April 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 February 2016 was 4.6%, unchanged
for the third month, 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 slowly increase for the next
year, to 5.2% by February 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 6.4% by February 2017. It is also
possible that the unemployment rate could decrease, to 4.1% by the February
2017. The 50% forecast intervals refine this uncertainty, showing that it is
unlikely the unemployment rate will decrease, or increase to over 5.5% by the
end of 2016. Overall, the forecast is for the unemployment rate to increase of
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 0.4 over the upcoming year. Second, the
market premium on high-yield bonds is higher than average, which also predicts
an increase in the unemployment rate, accounting for an increase of about 0.2
over the next 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 |
4.6% |
(4.6%, 4.6%) |
(4.6%, 4.9%) |
|
2016:4 |
4.6% |
(4.6%, 4.7%) |
(4.5%, 4.7%) |
|
2016:5 |
4.7% |
(4.6%, 4.8%) |
(4.4%, 4.9%) |
|
2016:6 |
4.8% |
(4.6%, 4.9%) |
(4.4%, 5.1%) |
|
2016:7 |
4.8% |
(4.6%, 5.0%) |
(4.4%, 5.2%) |
|
2016:8 |
4.9% |
(4.6%, 5.1%) |
(4.4%, 5.4%) |
|
2016:9 |
4.9% |
(4.6%, 5.2%) |
(4.4%, 5.5%) |
|
2016:10 |
|
5.0% |
(4.6%, 5.3%) |
(4.3%, 5.7%) |
2016:11 |
|
5.1% |
(4.7%, 5.4%) |
(4.3%, 5.9%) |
2016:12 |
|
5.1% |
(4.7%, 5.5%) |
(4.3%, 6.1%) |
2017:1 |
|
5.2% |
(4.6%, 5.6%) |
(4.2%, 6.3%) |
2017:2 |
|
5.2% |
(4.6%, 5.8%) |
(4.1%, 6.4%) |
Previous Forecasts