# Wisconsin Unemployment Rate Forecast

## University of Wisconsin

27 September 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 unemployment rate in August 2010 was 7.9%, holding near constant for two months, following a several months of strong decreases.

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 7.3% by August of 2011. The 80% forecast intervals show that there is considerable additional uncertainty. In particular, there is a significant probability that the unemployment rate will increase again towards the end of 2010 and the beginning of 2011, possibly rising back up to 8.7% by April of 2011. There is also a significant probability that the unemployment rate will continue to fall, as low as 5.8% by August of 2011. The 50% forecast intervals refine this uncertainty, showing that it is unlikely that the unemployment rate will rise over 8.1%, and could stay roughly constant 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.

Figure 1: Wisconsin Unemployment Rate Forecasts

TABLE 1: Wisconsin Unemployment Rate Forecasts

 History Point Forecast 50% Interval Forecast 80% Interval Forecast 2010: 2 8.7% 2010: 3 8.8% 2010: 4 8.5% 2010: 5 8.2% 2010: 6 7.9% 2010: 7 7.8% 2010: 8 7.9% 2010: 9 7.9% (7.8%,  7.9%) (7.7%,  8.0%) 2010:10 7.9% (7.6%,  8.0%) (7.5%,  8.1%) 2010:11 7.8% (7.4%,  8.0%) (7.3%,  8.2%) 2010:12 7.8% (7.2%,  8.1%) (7.1%,  8.3%) 2011:1 7.8% (7.1%,  8.1%) (7.0%,  8.4%) 2011:2 7.7% (7.0%,  8.1%) (6.8%,  8.4%) 2011:3 7.6% (6.9%,  8.1%) (6.7%,  8.6%) 2012:4 7.6% (6.8%,  8.1%) (6.6%,  8.7%) 2012:5 7.6% (6.6%,  8.1%) (6.4%,  8.8%) 2012:6 7.5% (6.5%,  8.1%) (6.3%,  8.9%) 2012:7 7.4% (6.3%,  8.1%) (6.1%,  8.9%) 2012:8 7.3% (6.1%,  8.0%) (5.8%,  8.9%)

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