Our anecdotal sense of the business cycle can divergesignificantly from the formal accounting. The former often dependson sentiment and our experience in the labor market as much asaggregate economic expansion. Many Americans would balk at thenotion that the Great Recession has been over for nearly fiveyears. That is unsurprising when seen through the lens of ourdeeply disappointing job creation trends.

While it has taken some time, investors and consumers outsidethe gateways have been growing increasingly confident. We stilllack national momentum in new job numbers, but rebounding homeprices and record-high stock market indices are both contributingto restored wealth and more positive assessments overall. For manymarket participants, concerns about the next recession rank wellbelow immediate issues such as higher interest rates. That's fairin a myopic world. Contemporaneous measures of recessionprobability (see Chauvet and Piger) show de minimus risks ofcontraction in the offing.

Economists have shown a very limited aptitude forprognosticating the business cycle far in advance of an inflexion.Nonetheless, our perception of the recovery's timing presents achallenge for investors and lenders. In the recorded history of theUS business cycle, we have only one instance of an expansionlasting as long as a decade. Over the last twelve business cycles,the trough-to-peak expansion has endured for just under five yearson average. Check your calendar. If the current expansion wasaverage in its timing, it would be nearing its end. History's bestcase, the five-year loan you make today will get a very real-worldstress test.