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 October 2012 was 6.9%, dropping from 7.3% in September, following a rise from the low of 6.7% achieved in April 2012. The fall in the September and October unemployment rate is consistent with declining unemployment throughout most U.S. states.

The forecasts are summarized in Figure 1 and Table 1. The point forecast is for the unemployment rate to stay roughly constant, between 6.8% and 7.0% over the next 12 months. The 80% forecast intervals show that there is considerable additional uncertainty. In particular, there is a possibility that the unemployment rate could increase in late spring and summer, possibly to 8.2% by October 2013. There is also a significant probability that the unemployment rate will continue to fall, as low as 5.8% by October of 2013. The 50% forecast intervals refine this uncertainty, showing that it is unlikely that the unemployment rate will rise over 7.6%, and may fall to 6.4% within a year. Overall, the likelihood of further increases and decreases are roughly comparable, with a considerable widening of uncertainty next summer.

This is a significant change in our monthly forecasts, due to the recent improvements in nearly all leading indicators, including the national unemployment rate, building permits, housing starts, the Chicago Fed National Activity Index, and the spread on high-yield bonds.

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	7.5%
2012:9	7.3%
2012:10	6.9%
2012:11		6.9%	(6.8%, 6.9%)	(6.8%, 6.9%)
2012:12		6.8%	(6.7%, 6.8%)	(6.6%, 6.9%)
2013:1		6.8%	(6.6%, 6.8%)	(6.5%, 7.0%)
2013:2		6.8%	(6.6%, 7.0%)	(6.4%, 7.1%)
2013:3		6.8%	(6.6%, 7.0%)	(6.4%, 7.2%)
2013:4		6.8%	(6.6%, 7.1%)	(6.4%, 7.2%)
2013:5		6.8%	(6.6%, 7.1%)	(6.3%, 7.3%)
2013:6		6.9%	(6.6%, 7.2%)	(6.3%, 7.5%)
2013:7		6.9%	(6.5%, 7.3%)	(6.1%, 7.8%)
2013:8		7.0%	(6.4%, 7.4%)	(6.0%, 8.0%)
2013:9		7.0%	(6.4%, 7.5%)	(5.9%, 8.1%)
2013:10		7.0%	(6.4%, 7.6%)	(5.8%, 8.2%)