# Wisconsin Unemployment Rate Forecast

## University of Wisconsin

2 April 2015

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 January 2015 was 4.8%, a drop from 5.0% from the previous month, continuing a steady decline since it had locally peaked at 7.1% in February 2013. Data revisions have decreased the reported Wisconsin unemployment rate for most of 2014. That is, the unemployment rate was slightly lower in 2014 than previously reported.

The forecasts are summarized in Figure 1 and Table 1. The point forecast is for the unemployment rate to stay roughly constant for the next eight months, and then increase slightly to 5.0% in January 2016. The 80% forecast intervals show that there is considerable additional uncertainty. There is a possibility that the unemployment rate could increase, possibly to 6.0% by February 2016. There is also a significant probability that the unemployment rate will continue to fall, as low as 4.1% by January 2016. The 50% forecast intervals refine this uncertainty, showing that it is unlikely the unemployment rate will increase during the next six months or above 5.5% in the next year, or fall below 4.5% during in the next year. Overall, the forecast is that it is unlikely for there to be a large movement in the unemployment rate before August, and after that there is somewhat more likelihood of an increase in the unemployment rate starting in the fall than a decrease.

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 2014:1 6.0% 2014:2 5.8% 2014:3 5.6% 2014:4 5.5% 2014:5 5.5% 2014:6 5.4% 2014:7 5.4% 2014:8 5.3% 2014:9 5.3% 2014:10 5.2% 2014:11 5.0% 2014:12 5.2% 2015:1 5.0% 2015:2 4.8% 2015:3 4.7% (4.6%,  4.7%) (4.6%,  4.7%) 2015:4 4.6% (4.5%,  4.7%) (4.5%,  4.7%) 2015:5 4.6% (4.5%,  4.7%) (4.4%,  4.7%) 2015:6 4.6% (4.5%,  4.7%) (4.3%,  4.8%) 2015:7 4.6% (4.5%,  4.8%) (4.3%,  4.9%) 2015:8 4.6% (4.5%,  4.8%) (4.3%,  4.9%) 2015:9 4.7% (4.5%,  4.9%) (4.3%,  5.1%) 2015:10 4.7% (4.5%,  5.0%) (4.3%,  5.2%) 2015:11 4.8% (4.5%,  5.1%) (4.3%,  5.4%) 2015:12 4.9% (4.5%,  5.2%) (4.2%,  5.6%) 2016:1 5.0% (4.5%,  5.4%) (4.1%,  5.9%) 2016:2 5.0% (4.5%,  5.5%) (4.1%,  6.0%)

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