The Wisconsin Department of Revenue’s Economic Outlook May forecast came out yesterday. As the US outlook (from S&P Global Market Insights, formerly Macroeconomic Advisers and IHS Markit) has improved, so too has that of Wisconsin.
Figure 1: Wisconsin nonfarm payroll employment from April release (blue), from December 2022 release (tan), forecast from May Economic Outlook forecast (sky blue squares), and February Economic Outlook forecast (tan squares). Source: BLS, and Wisconsin Economic Outlook (May, February).
Figure 2: Wisconsin GDP from March release (blue), from December 2022 release (tan), forecast from May Economic Outlook forecast (sky blue squares), and February Economic Outlook forecast (tan squares). Source: BLS, and Wisconsin Economic Outlook (May, February).
How does the DoR forecast compare against a model based on the correlation with US GDP? I estimate a first differences regression for 2005Q1 to 2022Q4; the adjusted R2 is 0.89, and coefficient indistinguishable from one. I show US GDP, forecast, Wisconsin GDP, DoR forecast, and the forecast generated using this equation in Figure 3.
Figure 3: US GDP (black, left scale), May Survey of Professional Forecasters median (red, left scale), Wisconsin GDP (blue, right scale), May DoR Economic Outlook forecast (sky blue squares, right scale), and regression based forecast (pink, right scale), 60% prediction interval (gray lines, right scale), all in bn.Ch.2012$ SAAR. Source: BEA, Philadelphia Fed (May), WI of DoR (May), and author’s calculations.
Since Wisconsin trend GDP grows about 0.7 ppts slower than US trend GDP (2005-2022), Wisconsin experiences a 0.8% decline in GDP in Q3, even while (in the Survey of Professional Forecasters forecast) nationwide GDP declines almost imperceptibly.
