Forecasting the US and Wisconsin Economies in 2018

Junjie Guo and Noah Williams

Executive Summary:

This paper provides forecasts for the United States and Wisconsin economies in 2018. We use versions of mixed-frequency vector autoregression (MF-VAR) models that have been previously applied to forecast the national economy, which we extend to also consider the state of Wisconsin. Our median forecasts suggest that the national economy will grow by about 2.4% in 2018, and the unemployment rate will continue to decrease, to about 3.6% by the end of 2018. For the Wisconsin economy, we forecast that real GDP will grow by about 1.6% in 2018. The labor market in Wisconsin will continue to tighten, with the forecast unemployment rate dropping below 3% to a new historic low. Thus our forecasts suggest a continuation of the economic expansion which began in late 2009, with a slight increase in the rate of growth in 2018. While we forecast faster growth, the uncertainty in our forecasts. For both the national and Wisconsin economies there is a significant chance that growth will slow, but relatively little chance of a substantial economic downturn. We forecast a 10.7% chance that national GDP will decline for two consecutive quarters, and an 18% chance that by the end of 2018 the Wisconsin unemployment rate will be above its current level. We also show that national growth which is faster or slower than our median forecast will have a similar impact in Wisconsin.

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