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 February 2012 was 7.2%, rising from 6.7% in December and 7.02% in January. During 2012, the unemployment rate had been roughly constant, ranging between 6.7% and 7.1%. These reflect new revisions in the employment statistics issued by the Bureau of Labor Statistics.

The forecasts are summarized in Figure 1 and Table 1. The point forecast is for the unemployment rate to decrease back to 6.7% by October 2013 and then stay constant. The 80% forecast intervals show that there is considerable additional uncertainty. In particular, there is a possibility that the unemployment rate could increase in the spring, possibly to 7.6% by July 2013. There is also a significant probability that the unemployment rate will continue to fall, as low as 6.1% by July 2013. The 50% forecast intervals refine this uncertainty, showing that it is unlikely that the unemployment rate will rise over 7.2%, and probably will not fall below 6.5% in the same time period. Overall, the unemployment rate is more likely to slightly decrease than increase in 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.

Figure 1: Wisconsin Unemployment Rate Forecasts

TABLE 1: Wisconsin Unemployment Rate Forecasts

	History	Point Forecast	50% Interval Forecast	80% Interval Forecast



2012:7	7.0%
2012:8	7.1%
2012:9	6.9%
2012:10	6.8%
2012:11	6.8%
2012:12	6.7%
2013:1	7.0%
2013:2	7.2%
2013:3		7.1%	(7.0%, 7.2%)	(7.0%, 7.2%)
2013:4		7.1%	(6.9%, 7.2%)	(6.8%, 7.4%)
2013:5		7.0%	(6.8%, 7.2%)	(6.5%, 7.4%)
2013:6		6.9%	(6.6%, 7.2%)	(6.3%, 7.5%)
2013:7		6.9%	(6.5%, 7.2%)	(6.1%, 7.6%)
2013:8		6.8%	(6.4%, 7.2%)	(6.0%, 7.6%)
2013:9		6.8%	(6.4%, 7.2%)	(6.0%, 7.5%)
2013:10		6.7%	(6.3%, 7.1%)	(6.0%, 7.5%)
2013:11		6.7%	(6.3%, 7.1%)	(5.9%, 7.5%)
2013:12		6.7%	(6.2%, 7.1%)	(6.0%, 7.5%)
2014:1		6.7%	(6.3%, 7.1%)	(5.9%, 7.6%)
2014:2		6.7%	(6.2%, 7.1%)	(5.8%, 7.6%)