Wisconsin
Unemployment Rate Forecast
Bruce E. Hansen
Mary Claire Aschenbrenner
Phipps Distinguished Chair
T. Haavelmo Professor
Department of
Economics
University of Wisconsin
22 July 2016
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 June 2016 was 4.2%, constant from
May, after three monthly decreases, but roughly constant since March 2015.
The forecasts are summarized in Figure 1 and Table 1. The
point forecast is for the unemployment rate to stay roughly constant for five
months, and then slowly increase, to 4.9% by May 2017. The 80% forecast
intervals show that there is considerable additional uncertainty. There is a
possibility that the unemployment rate could increase as high as 6.2% by June
2017. It is also possible that the unemployment rate could decrease, to 3.7% by
June 2017. The 50% forecast intervals refine this uncertainty, showing that it
is unlikely the unemployment rate will decrease below 4.2%, or increase to over
4.7% by the end of 2016. Overall, the forecast is for the unemployment rate to
increase over the next year.
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.
To understand the economic reason behind these forecasts, the
econometric model finds one salient features. The state unemployment rate is
below its long-term average. Mean reversion predicts a slight increase,
accounting for an increase of about 0.5 over the upcoming year. Building
permits are also below their long-term average, accounting for an increase of
about 0.4 over the upcoming year. The other variables contribute only small
effects to the forecast.
Figure 1: Wisconsin Unemployment Rate Forecasts
TABLE 1: Wisconsin
Unemployment Rate Forecasts
|
|
History |
Point Forecast |
50% Interval Forecast |
80% Interval Forecast |
|
2016:1 |
4.6% |
|
|
|
|
2016:2 |
4.6% |
|
|
|
|
2016:3 |
4.5% |
|
|
|
|
2016:4 |
4.4% |
|
|
|
|
2016:5 |
4.2% |
|
|
|
|
2016:6 |
4.2% |
|
|
|
|
2016:7 |
4.2% |
(4.2%, 4.2%) |
(4.1%, 4.2%) |
|
|
2016:8 |
4.2% |
(4.1%, 4.3%) |
(4.1%, 4.3%) |
|
|
2016:9 |
4.3% |
(4.2%, 4.3%) |
(4.0%, 4.4%) |
|
|
2016:10 |
|
4.3% |
(4.2%, 4.4%) |
(4.0%, 4.6%) |
|
2016:11 |
|
4.4% |
(4.2%, 4.6%) |
(4.0%, 4.7%) |
|
2016:12 |
|
4.5% |
(4.2%, 4.7%) |
(4.0%, 4.9%) |
|
2017:1 |
|
4.5% |
(4.2%, 4.8%) |
(4.0%, 5.0%) |
|
2017:2 |
|
4.6% |
(4.3%, 4.9%) |
(4.0%, 5.2%) |
|
2017:3 |
|
4.7% |
(4.3%, 5.0%) |
(4.0%, 5.5%) |
|
2017:4 |
|
4.8% |
(4.3%, 5.2%) |
(3.8%, 5.8%) |
|
2017:5 |
|
4.9% |
(4.2%, 5.4%) |
(3.8%, 6.1%) |
|
2017:6 |
|
4.9% |
(4.2%, 5.5%) |
(3.7%, 6.2%) |
Previous Forecasts