The global economy’s warning signs are no longer working

London — The widespread perplexity currently afflicting economic mandarins was captured in a recent note from the World Bank: “Global growth defies expectations.”

Predictions that turn out to be wrong—or that defy expectations—are as routine as a heartbeat.

Also read: Record debt of the world’s richest nations threatens global growth

But now something is out of place. Known references to how companies, consumers, investors and workers have historically reacted to economic blows and counterattacks have proven less reliable.

This has made interpreting the flood of data more complicated than ever. It’s as if the cars, instead of slowing down at a flashing yellow light, as expected, started to accelerate.

Consider people’s spending habits. Normally, when consumers are pessimistic about the economy, they tend to spend less, fearful of what lies ahead.

And, in the United States, consumer perception has been negative. Across all categories — from rising prices to the job market — a survey showed consumer confidence fell to its lowest level in 12 years. Still, Americans haven’t stopped buying. Family consumption has grown steadily.

The stock market has also generally rallied despite frenzied turmoil, including a global trade war, whiplash policy changes, threats to the independence of central banks, military conflicts and rising geopolitical tensions, colossal debt and a possible artificial intelligence-related financial bubble.

“It’s really remarkable that we haven’t seen more big swings,” said Kenneth Rogoff, author of “Our Dollar, Your Problem,” commenting on the market’s calm.

Many companies also shrugged off the uncertainty.

“The textbooks would say that uncertainty is bad for economic growth, but there isn’t much evidence that it has had a significant impact on the U.S. economy so far,” said Neil Shearing, chief economist at Capital Economics. “Business investment is the first place you would expect to see this appear, but it has been strong.”

In a sense, mixed expectations shouldn’t be so surprising. Even in ordinary times, economists tend to exaggerate the scientific precision of their field, acting as if economies are governed by inexorable forces rather than the uncoordinated activities of mercurial human beings with varying goals and impulses.

The covid-19 pandemic caused a major shock to the global economic system. And now unpredictable volatility has been further turbocharged by the transformation of the world economy and geopolitical order driven by President Donald Trump.

The rules-based cooperative trading system is giving way to great-power aggression and mercantilism. With so many changes happening so quickly, historical patterns are breaking down.

Traditionally reliable indicators that signal the start of a recession have also gone off the rails. A sudden, sharp rise in unemployment, for example, has historically been remarkably effective in predicting recessions.

Still, that bond broke. A metric known as Sahm’s Rule, named after former Federal Reserve economist Claudia Sahm, predicted a recession in 2024 that never materialized.

Another sign of recession — the difference between long- and short-term bond yields, known as the yield curve — also failed. Typically, long-term government bonds offer higher rates than short-term ones, because investors do not want to tie up their money for a long time when the economy is doing well.

So when the normal yield curve inverts, and rates on short-term bonds are higher than those on long-term bonds, this has traditionally been a sign that the economy is about to stumble into a recession.

But this indicator also failed, most evidently in 2022 and 2023.

The traditional link between the performance of the US economy and the value of the dollar has also been broken. Uncertainty often drives up the value of the dollar relative to other currencies as investors seek a safe haven in risky times. But the dollar fell to its lowest level in years.

These are strange times. Still, leaving aside cases of “irrational exuberance” like the possible overinvestment around AI, there are reasonable explanations for most of the false signals.

Analysts have backed off their predictions that Trump’s tariff offensive last spring would trigger higher prices, rising unemployment and a possible recession. Tariff levels continued to fluctuate unpredictably, and many companies stockpiled goods in advance while others temporarily absorbed the higher costs.

As for vigorous consumption, it is actually dominated by a thin slice of high-income households. Moody’s Analytics estimated that the richest 10% of households accounted for almost half of all consumption.

People concerned about their financial prospects continue to shop, but at discount stores.

And what they are spending money on has also changed. Recent credit card data from Bank of America showed that people were shopping more at grocery stores at lunchtime and less at restaurants and coffee shops, suggesting that rising prices are a concern.

The exceptionally weak dollar can be explained by the heavy tariffs imposed by Trump, combined with fears that he could interfere with the Federal Reserve’s independence and fuel inflation.

Barry Eichengreen, a professor of economics and political science at the University of California, Berkeley, said economists have always tended to rely too much on convention.

“The economy is an incredibly complicated beast, and we are in a period of structural change,” Eichengreen said. “So it’s not surprising that rules of thumb are increasingly failing.”