Junjie Guo and Noah Williams
Abstract:
This paper provides forecasts for the United States and Wisconsin economies in 2019. We use a mixed-frequency vector auto-regression (MF-VAR) model that has been previously applied to forecast the national economy, which we extend to also consider the state of Wisconsin. Our median forecasts suggest that the growth rate of the national economy will slow substantially, with GDP growth down to about 1.4% in 2019, and the unemployment rate will rise to about 4.2% by the end of the year. For the Wisconsin economy, we forecast that real GDP will grow by about 2.4% in 2019, and the unemployment rate will also rise to about 4.2% by the end of the year. The rising unemployment rate, coupled with a shrinking civilian labor force which is forecast to decline by about 1%, implies that employment growth in Wisconsin may turn negative in 2019. There is a chance that the slowdown may be more dramatic for both economies: our forecasts give nonnegligible weight to real GDP falling by as much 1% and the unemployment rate rising above 4.5%, and the chance that real GDP will decline in two consecutive quarters is over 20%. However, while there is heighted recession risk, for both economies, our median forecasts for 2019 instead suggest a growth slowdown, from the more rapid growth 2017-2018 to levels which have been more prevalent during the recovery.