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 December 2010 was 7.5%, a slight decrease from November, and dropping from 7.8% in October.

The forecasts fare summarized in Figure 1 and Table 1. The point forecast is for the unemployment rate to decline slowly over the next year, dropping to 6.8% by December of 2011. The 80% forecast intervals show that there is considerable additional uncertainty. In particular, there is a possibility that the unemployment rate will increase again mid-year, possibly rising back up to 8.2% by October of 2011. There is also a significant probability that the unemployment rate will continue to fall, as low as 5.5% by December of 2011. The 50% forecast intervals refine this uncertainty, showing that it is unlikely that the unemployment rate will rise over its current value, but could easily fall to 5.8% by next November.

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



2010: 7	7.9%
2010: 8	7.9%
2010: 9	7.8%
2010:10	7.8%
2010:11	7.6%
2010:12	7.5%
2011:1		7.4%	(7.3%, 7.4%)	(7.3%, 7.5%)
2011:2		7.3%	(7.1%, 7.4%)	(7.1%, 7.5%)
2011:3		7.2%	(6.9%, 7.4%)	(6.9%, 7.5%)
2011:4		7.1%	(6.8%, 7.4%)	(6.7%, 7.6%)
2011:5		7.1%	(6.7%, 7.4%)	(6.6%, 7.6%)
2011:6		7.0%	(6.6%, 7.4%)	(6.4%, 7.6%)
2011:7		7.0%	(6.4%, 7.4%)	(6.3%, 7.7%)
2011:8		7.0%	(6.3%, 7.5%)	(6.2%, 7.9%)
2011:9		7.0%	(6.2%, 7.5%)	(6.0%, 8.1%)
2011:10		6.9%	(6.1%, 7.5%)	(5.9%, 8.2%)
2011:11		6.9%	(6.0%, 7.5%)	(5.8%, 8.2%)
2011:12		6.8%	(5.8%, 7.4%)	(5.5%, 8.2%)