RESEARCH REPORT: January 19, 2022
BY: Junjie Guo and Noah Williams
This paper provides forecasts for the United States and Wisconsin economies in 2022. For each economy, we estimate a mixed-frequency vector auto-regression model using data both before March 2020 and after June 2020, with the extreme observations between March and June 2020 dropped to eliminate their impacts on the model estimates. Given the estimated model, we forecast each economy forward to the end of 2022. The model suggests that both economies will transit from the path of rapid recovery in 2021 to the slower growth observed before the pandemic. However, employment in both economies will remain below their pre-pandemic levels due to a low labor force participation rate that is consistent with the high number of workers quitting their jobs observed recently. For the U.S. economy, we forecast that the yearover-year growth rate of real GDP will be 2%, personal consumption expenditures will grow by 5%, inflation will drop to about 2%, the unemployment rate will remain at round 3.9%, the economy will add 1.7 million nonfarm jobs, and the average hourly earnings will increase by 3.9%. For the Wisconsin economy, we forecast that the yearover-year growth rate of real GDP will be 1.8%, the unemployment rate will drop to about 2.2%, and the economy will add 30 thousand nonfarm jobs. We project that both economies face significant uncertainties. There is a significant chance that both economies will grow by 4% or more, but also a significant chance that both economies will grow by 1% or less.