# Wisconsin Unemployment Rate Forecast

## University of Wisconsin

11 February 2014

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 December 2013 was 6.2%, declining steadily from 7.0% in May, after being roughly constant for the previous five months. This trend is meaningfully lower than the unemployment rate during 2012, which ranged between 6.7% and 7.1%.

The forecasts are summarized in Figure 1 and Table 1. The point forecast is for the unemployment rate to decline to 5.8% by April 2014, and then stay roughly constant. The 80% forecast intervals show that there is considerable additional uncertainty. There is a possibility that the unemployment rate could increase slightly, possibly to 6.5% by September 2014. There is also a significant probability that the unemployment rate will continue to fall, as low as 5.0% by September 2014. The 50% forecast intervals refine this uncertainty, showing that most likely the unemployment rate will not increase above 6.2% in 2014, and probably not fall below 5.3% in the next year. Overall, the forecast is optimistic for the unemployment rate to fall; but not by much.

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 2013:1 7.0% 2013:2 7.1% 2013:3 7.1% 2013:4 7.1% 2013:5 7.0% 2013:6 6.8% 2013:7 6.8% 2013:8 6.7% 2013:9 6.6% 2013:10 6.5% 2013:11 6.3% 2013:12 6.2% 2014:1 6.1% (6.1%,  6.2%) (6.0%,  6.2%) 2014:2 6.1% (6.0%,  6.1%) (5.9%,  6.2%) 2014:3 6.0% (5.8%,  6.1%) (5.7%,  6.2%) 2014:4 5.8% (5.6%,  6.0%) (5.4%,  6.2%) 2014:5 5.8% (5.5%,  6.1%) (5.2%,  6.3%) 2014:6 5.7% (5.4%,  6.1%) (5.1%,  6.3%) 2014:7 5.7% (5.4%,  6.1%) (5.1%,  6.3%) 2014:8 5.7% (5.4%,  6.1%) (5.1%,  6.4%) 2014:9 5.8% (5.3%,  6.1%) (5.0%,  6.5%) 2014:10 5.8% (5.4%,  6.1%) (5.0%,  6.5%) 2014:11 5.7% (5.3%,  6.1%) (5.0%,  6.5%) 2014:12 5.8% (5.4%,  6.2%) (5.0%,  6.7%)

Previous Forecasts