# Wisconsin Unemployment Rate Forecast

## University of Wisconsin

28 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 March 2015 was 4.6%, a drop from 4.8% 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 five months, and then increase to 5.1% by March 2016. The 80% forecast intervals show that there is considerable additional uncertainty. There is a possibility that the unemployment rate could increase as high as 6.0% by March 2016. There is also a significant probability that the unemployment rate will continue to fall, as low as 4.2% by February 2016. The 50% forecast intervals refine this uncertainty, showing that it is unlikely the unemployment rate will fall below 5.5% during the next year or increase substantially over the next six months, although the 50% interval allows the unemployment rate to increase up to 5.5% by March 2016. Overall, the forecast is that it is unlikely for there to be a further decrease in the unemployment rate, and there is 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 2015:1 5.0% 2015:2 4.8% 2015:3 4.6% 2015:4 4.6% (4.5%,  4.6%) (4.5%,  4.6%) 2015:5 4.5% (4.5%,  4.6%) (4.4%,  4.7%) 2015:6 4.6% (4.5%,  4.6%) (4.3%,  4.7%) 2015:7 4.6% (4.5%,  4.7%) (4.3%,  4.8%) 2015:8 4.6% (4.5%,  4.8%) (4.3%,  4.9%) 2015:9 4.7% (4.5%,  4.9%) (4.4%,  5.0%) 2015:10 4.7% (4.5%,  4.9%) (4.3%,  5.1%) 2015:11 4.8% (4.6%,  5.0%) (4.3%,  5.3%) 2015:12 4.9% (4.6%,  5.1%) (4.3%,  5.4%) 2016:1 4.9% (4.6%,  5.3%) (4.3%,  5.7%) 2016:2 5.0% (4.6%,  5.4%) (4.2%,  5.9%) 2016:3 5.1% (4.6%,  5.5%) (4.2%,  6.0%)

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