Wisconsin Unemployment Rate Forecast

T. Haavelmo Professor

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 July 2012 was 7.3%, increasing from 7.3% in June, and from the low of 6.7% achieved in April 2012.

The forecasts are summarized in Figure 1 and Table 1. The point forecast is for the unemployment rate to increase to approximately 7.5% then remaining stable at that level for the next year. The 80% forecast intervals show that there is considerable additional uncertainty. In particular, there is a possibility that the unemployment rate could increase to as much as 9.3% by July 2013. There is also a significant probability that the unemployment rate will continue to fall, as low as 5.9% by June of 2013. The 50% forecast intervals refine this uncertainty, showing that it is unlikely that the unemployment rate will rise over 8.3%, and may fall to 6.6% within a year. Overall, the likelihood is higher that the unemployment rate will increase than decrease. This is a meaningful change in our forecasts. Also, the level of uncertainty appears to be particularly high at present.

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		7.4%	(7.3%, 7.5%)	(7.2%, 7.5%)
2012:9		7.5%	(7.4%, 7.6%)	(7.2%, 7.8%)
2012:10		7.5%	(7.3%, 7.8%)	(6.9%, 8.1%)
2012:11		7.5%	(7.1%, 7.8%)	(6.7%, 8.2%)
2012:12		7.4%	(6.9%, 7.9%)	(6.4%, 8.4%)
2013:1		7.4%	(6.8%, 8.0%)	(6.2%, 8.5%)
2013:2		7.4%	(6.8%, 8.0%)	(6.3%, 8.6%)
2013:3		7.5%	(6.8%, 8.1%)	(6.2%, 8.8%)
2013:4		7.5%	(6.8%, 8.2%)	(6.2%, 8.9%)
2013:5		7.5%	(6.7%, 8.2%)	(6.1%, 9.0%)
2013:6		7.5%	(6.6%, 8.2%)	(5.9%, 9.1%)
2013:7		7.5%	(6.6%, 8.3%)	(5.9%, 9.3%)