Wisconsin Unemployment Rate Forecast

 

Bruce E. Hansen

T. Haavelmo Professor

Department of Economics

University of Wisconsin

 

25 October 2012

 

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 September 2012 was 7.3%, dropping from 7.5% in August, following a rise from the low of 6.7% achieved in April 2012. The fall in the September unemployment rate is consistent with declining unemployment throughout most U.S. states.

The forecasts are summarized in Figure 1 and Table 1. The point forecast is for the unemployment rate to stay roughly constant with a slight decrease, leveling at 7.1% around January 2013. The 80% forecast intervals show that there is considerable additional uncertainty. In particular, there is a possibility that the unemployment rate could increase in late spring and summer, possibly to 8.4% by September 2013. There is also a significant probability that the unemployment rate will continue to fall, as low as 5.8% by September of 2013. The 50% forecast intervals refine this uncertainty, showing that it is unlikely that the unemployment rate will rise over 7.7%, and may fall to 6.4% within a year. Overall, the likelihood of further increases and decreases are roughly comparable, with a considerable widening of uncertainty in late spring.

This is a significant change in our monthly forecasts, due to the recent improvements in nearly all leading indicators, including the national unemployment rate, building permits, housing starts, the Chicago Fed National Activity Index, and the spread on high-yield bonds.

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

2012:1

6.9%

2012:2

6.9%

2012:3

6.8%

2012:4

6.7%

2012:5

6.8%

2012:6

7.0%

2012:7

7.3%

2012:8

7.5%

2012:9

7.3%

2012:10

 

7.3%

(7.2%,  7.3%)

(7.2%,  7.4%)

2012:11

 

7.3%

(7.2%,  7.4%)

(7.1%,  7.5%)

2012:12

 

7.2%

(7.1%,  7.3%)

(6.9%,  7.4%)

2013:1

 

7.1%

(7.0%,  7.3%)

(6.8%,  7.4%)

2013:2

 

7.1%

(6.9%,  7.2%)

(6.7%,  7.4%)

2013:3

 

7.0%

(6.8%,  7.3%)

(6.6%,  7.4%)

2013:4

 

7.0%

(6.7%,  7.4%)

(6.4%,  7.6%)

2013:5

 

7.1%

(6.6%,  7.4%)

(6.3%,  7.8%)

2013:6

 

7.1%

(6.6%,  7.5%)

(6.2%,  8.0%)

2013:7

 

7.1%

(6.5%,  7.6%)

(6.0%,  8.2%)

2013:8

 

7.1%

(6.4%,  7.6%)

(5.9%,  8.3%)

2013:9

 

7.1%

(6.4%,  7.7%)

(5.8%,  8.4%)

 

Previous Forecasts

                September 2012

August 2012

July 2012

June 2012

May 2012

                April 2012

Februrary 2012

January 2012

December 2011

November 2011

October 2011

September 2011

August 2011

July 2011

June 2011

May 2011

                April 2011

March 2011

February 2011

January 2011

                December 2010

November 2010

October 2010

September 2010

August 2010

July 2010

June 2010

May 2010

April 2010

                March 2010

                February 2010

January 2010

                December 2009

                November 2009

 

Forecast Methodology