Junjie Guo and Noah Williams
Abstract:
This paper provides forecasts for the United States and Wisconsin economies in 2020. We use a mixed-frequency vector auto-regression model that has been previously applied to forecast the national economy, which we extend to also consider the state of Wisconsin. Our forecasts suggest that the long economic recovery will continue in 2020. We forecast that growth nationwide will accelerate slightly over the course of 2020, with real GDP growing around 2.5% for the year and the unemployment rate falling to about 3.3%. For the Wisconsin economy, we forecast that real GDP will grow by about 1.7% in 2020, roughly in the range of its recent performance, while the labor market will continue its recent cooling, with the unemployment rate increasing to 3.7% by the end of the year. The rising unemployment rate, coupled with a continued decline in the labor force (forecast to fall by about 1%) implies that employment growth in Wisconsin will turn negative in 2020. While there is a significant chance that growth may be slower than our median forecast, odds of a recession remain relatively low. The chance that real GDP will decline in two consecutive quarters is about 10% for the U.S. and 28% for Wisconsin. For both economies, our median forecasts for 2020 are within the range of values observed in the past few years, suggesting that, in the absence of significant shocks, both economies will continue on their trends with little chance of substantial economic downturn.