From Retail Slump to Smuggling Scoops
Having remained remarkably resilient, the US consumer has become rather more sensitive of late, price sensitive that is, likely influenced by ongoing anxiety over potential tariff implications. Not only has consumer (and business) sentiment deteriorated, but last month US retail sales experienced their sharpest decline this year, falling 0.9% and marking the second consecutive monthly drop.
Seven of the thirteen retail categories saw decreases, with notable declines in building materials, gasoline, and motor vehicles. The drop in vehicle sales followed a period of increased purchases made in anticipation of the imposition of tariffs. Even spending at restaurants and bars, the sole service-sector category in the report, saw its largest drop since early 2023.
The retail sales control group figure, which contributes to GDP calculations and excludes volatile categories like autos and gasoline, surprisingly rose by 0.4% in May. This, coupled with a slight upward revision for April, indicates that the consumer is still spending, though perhaps not as freely as before. As we have indicated in previous dailies, the labour market is losing momentum and millions of Americans are once again facing student loan repayments. The largest price rises will likely be felt in July, and into the rest of the year, further squeezing consumers, whose spending accounts for ~70% of GDP. Additionally, household wealth has taken a hit due to tariff-induced stock market volatility. In this uncertain economic climate, consumers may, therefore, be more inclined to increase precautionary savings.
Fed officials are closely monitoring economic indicators, including consumer spending, as they assess the impact of trade policies and geopolitical tension-driven spikes in commodity prices to deliberate on interest rates this week. We expect a “wait-and-see” hold at today’s meeting, however, what is of more relevance is the Fed’s economic projections, especially given the recent conflicting data, “huge” uncertainty around trade levies, and the dispersion of the previous dots.
Meanwhile, in the town of Gbapleu, “retail” takes on a whole new meaning. Here the border between Ivory Coast and Guinea is separated by the most intimidating of borders - a rope tied between two rusty barrels. It is less a border, more a polite suggestion, largely ignored by motorbikes piled high with people and goods. For those avoiding official scrutiny, "other routes" exist; secret dirt tracks perfect for midnight cocoa smuggling. Motorcycle couriers become nocturnal cocoa ninjas, hauling immense sacks of beans into Guinea. It is a dangerous but lucrative game, with smugglers earning over three times the local living wage. As cocoa prices have soared globally, but remain low in Ivory Coast due to government controls, smuggling has become irresistible. Even God, according to Fred, a smuggler, seems to be on their side. This illicit trade is a headache for everyone from international buyers struggling with traceability, to the Ivorian government, losing crucial revenue. Despite increased anti-smuggling efforts, including military deployments and seized trucks, the lure of higher prices in neighbouring countries, sometimes double that of the Ivory Coast, means farmers and middlemen are choosing the profitable path of smuggling. This cocoa leakage frustrates honest traders and highlights a simple truth: it is hard to convince a farmer to accept less money when more is literally just a rope and a few dirt tracks away.
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