Wisconsin Unemployment Rate Forecast

University of Wisconsin

10 March 2010

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 forecasts are summarized in Figure 1 and Table 1. The point forecast is for the unemployment rate to decline steadily over the next twelve months, dropping to 7.2% by January of 2011. The 80% forecast intervals show that there is considerable additional uncertainty. The unemployment rate may fall as low as 5.8%, or rise to 9.0% and not fall meaningfully over the next year. The 50% forecast intervals refine this uncertainty, showing that it is unlikely that the unemployment rate will rise above 8.7%, and more likely than not fall to at least 7.8% by next January.

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 large 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 2009: 8 8.8% 2009: 9 8.8% 2009:10 8.7% 2009:11 8.6% 2009:12 8.5% 2010: 1 8.7% 2010: 2 8.6% (8.5%,  8.7%) (8.4%,  8.7%) 2010: 3 8.5% (8.2%,  8.7%) (8.2%,  8.8%) 2010: 4 8.3% (7.9%,  8.6%) (7.8%,  8.8%) 2010: 5 8.2% (7.6%,  8.5%) (7.4%,  8.9%) 2010: 6 8.1% (7.4%,  8.5%) (7.2%,  8.9%) 2010: 7 7.9% (7.1%,  8.5%) (6.9%,  8.9%) 2010: 8 7.8% (6.9%,  8.4%) (6.8%,  8.9%) 2010: 9 7.7% (6.8%,  8.3%) (6.6%,  8.9%) 2010:10 7.7% (6.7%,  8.3%) (6.4%,  9.0%) 2010:11 7.5% (6.5%,  8.2%) (6.3%,  9.0%) 2010:12 7.4% (6.3%,  8.0%) (6.0%,  8.9%) 2011:11 7.2% (6.0%,  7.8%) (5.8%,  8.7%)

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