Comparing the Wisconsin and National Business

Cycle
Brian Honness, Economics & Finance
Dr. Zamira Simkins, School of Business & Economics

Abstract
The objective of this study was to examine and
forecast the Wisconsin business cycle. The motivation
for this project is that little research has been done on
state-level business cycles. The study aims to address
two key research questions: How does the Wisconsin
business cycle compare to the national business cycle?
What can this tell us about the state business cycles?
To answer these research questions, leading economic
indicators were used to forecast the states coincident
economic indicators.
The coincident economic
indicators were then utilized to determine the
recessionary periods in Wisconsin between 1970 to
present. Lastly, the state recessionary periods were
compared to the national recessionary periods.

Literature Review
Vining (1947): Pioneer in the studying of regional and
state business cycles
Focused on cyclical economic changes, tracking
statistics such as unemployment and building
permits.
Conference Board (2001): Defined and tracked
business cycle indicators on a national level.
Can be used as a baseline to finding state business
cycle indicators such as: unemployment claims,
index of consumer expectations, and housing
permits.
Philadelphia Federal Reserve (2001): Creating
economic indexes for states in the third district
Analyzed and compared state business cycles to the
national business cycle to show similarities and
differences in recessionary periods.
Owyang, Piger, and Wall (2005): Explored
differences in business cycle phases across all 50
states.
Found that different states show different business
cycle characteristics, such as volatility, recession
lag/leads, and amount of time within recessions.

Model
Three regression models constructed using nonfarm
employment, unemployment rate, and the coincident
indicator index as dependent variables.

Regression Analysis

Key Findings

Variable

Description

Source

Nonag_emp_state

Total nonfarm employment

FRED

Coinc_index_state

Average of four coincident indicators

FRED

Unrate_state

Unemployment rate

FRED

Lead_index_state

Average of four leading indicators

FRED

Unemp_claims_state

New unemployment claims

USDOL

Permits_state

New private housing permits authorized

FRED

Lnsp500

Natural log transformation of S&P500 Stock Index

FRED

Cons_sentim

University of Michigan consumer sentiment survey

FRED

Qdummy1-qdummy4

Quarterly dummies for quarters 1 through 4

Generated

Wisconsin Bus Cycle

Variable
qdummy1
qdummy2
qdummy4
lead_index_state
unemp_claims_state
permits_state
cons_sentim
lnsp500
_cons
Prob > F
Adj R-squared

nonag_emp_state

coinc_index_state

unrate_state

-36133.22**
-23844.76**
11565.1
-22527.9***
0.3138**
54.35232***
-1103.389**
364640.1***
161017.6***
.000
.9739

1.887592
-0.5375525
0.4895576
-1.258924***
-1.57e-06**
0.0013965**
-0.2175992***
34.45818***
0.2175992***
.000
.9708

-0.7515368***
0.2356534
-1.936831***
0.5770177***
0.0000251***
-0.0005769***
-0.0413637***
-0.0747799
6.760552***
.000
.8693

Wisconsin and US Recessionary Periods

The stock market and Wisconsins business cycle

are highly correlated:
The majority of variation in each dependent
variable was due to a change in the natural log of
the S&P 500 stock index.
Wisconsins economy shows large seasonality due
to its industries:
Wisconsin sees large changes in nonfarm
employment and in the unemployment rate as the
economy moves from quarter to quarter. These
changes can be attributed to industries (i.e.
construction) that are unable to work during certain
parts of the year for various reasons.
National consumer sentiment does not have a large
effect on the Wisconsin business cycle:
Because Wisconsins economy relies on different
industries for economic growth, the national
consumer confidence indicator has little predictive
power on a state level.

Conclusion
Native American in WI have lower rates of return
to education, both in terms of years of schooling
and degrees, than non-Native American.
Potential factors behind this wage gap:
geographical location, occupational choices,
cultural differences, and racial discrimination.
Key limitations and future research: no observed
measure of individual abilities potentially biased
OLS coefficient of returns to education; solution use instrumental variable approach.

Selected References
Mincer, J. A. (1974). Schooling, experience, and
earnings. NBER Books.
Kuhn, P., & Sweetman, A. (2002). Aboriginals as
unwilling immigrants: Contact, assimilation and
labour market outcomes. Journal of Population
Economics, 15(2), 331-355.

Acknowledgements
Authors are grateful to the University of WisconsinSuperior and the McNair Scholars program for
financial support.