Consumer Spending Dropped The Most On Record In April Amid the Coronavirus Pandemic

Plus, JCPenney is expected to file for bankruptcy today, the Trump administration moved to block chip shipments to Huawei, and the FDA issued a warning about Abbott Labs’ rapid COVID-19 test.

Stocks were lower to start Friday with the Dow dropping 169 points, or 0.72%. The S&P 500 slipped 0.8%, while the Nasdaq fell nearly 1%.

Consumer spending dropped by a record 16.4% in April as the coronavirus pandemic shuttered businesses, spurred layoffs, and compelled Americans to stay home. The plunge was almost double the 8.3% drop in March, which had previously been the worst reading since 1992. According to the report from the Commerce Department, clothing stores took the biggest hit with a 78.8% fall, while electronics and appliances dropped 60.6%, furniture and home furnishings slipped 58.7%, sporting goods fell 38%, and bars and restaurants saw sales drop 29.5%. A separate report from the Federal Reserve showed U.S. factory production fell the most on record in April going back to 1919, slumping 13.7% from the prior month. The Fed’s report also showed capacity utilization—which measures the amount of a plant that’s in use—fell to 64.9%, the lowest on record going back to 1967.

With retail sales in free fall, troubled department store retailer JCPenney is expected to file for bankruptcy protections as soon as today. Even as the chain prepares to declare, JCPenney made an approximately $17 million interest payment, and approved bonuses of $1 million or more to its top four executives. “At JCPenney, we are making tough, prudent decisions to protect the future of our company and navigate an uncertain environment, including taking necessary steps to retain our talented management team,” the company said in a statement. As of February, JCPenney employed roughly 90,000 full-time and part-time employees and 846 department stores. The company is working on a plan to close between 180 to 200 stores while in bankruptcy.

Trade tensions are in the spotlight again this morning after the Trump administration moved to block shipments of semiconductors to Chinese telecom giant Huawei Technologies from global chipmakers. The U.S. Commerce Department said it was amending an export rule to “narrowly and strategically target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology.” Last year, in the thick of the U.S.-China trade war, the U.S. put Huawei on an “Entity List” that required U.S. companies to obtain a special license to sell products to the Chinese company, essentially freezing Huawei out of getting some of the computer chips it needs to make equipment integral to new 5G wireless networks. Still, “Huawei has continued to use U.S. software and technology to design semiconductors, undermining the national security and foreign policy purposes of the Entity List by commissioning their production in overseas foundries using U.S. equipment,” U.S. Secretary of Commerce Wilbur Ross said in a statement. Hu Xijin, editor-of-chief of Chinese state-run news site Global Times, tweeted Friday that if the U.S. takes further action to block supply to Huawei, China will activate its “unreliable entity list” and “restrict or investigate” U.S. companies including Apple, Cisco Systems, and Qualcomm, and suspend the purchase of Boeing airplanes, denting all four stocks in morning trading.

In coronavirus news, the FDA issued an alert late yesterday on the accuracy of Abbott Laboratories’ rapid COVID-19 test after researchers at New York University said it was missing a third to almost half of positive cases. “We are still evaluating the information about inaccurate results and are in direct communication with Abbott about this important issue,” said Tim Stenzel, director of the Office of In Vitro Diagnostics and Radiological Health at the FDA’s Center for Devices and Radiological Health, in a statement. “We will continue to study the data available and are working with the company to create additional mechanisms for studying the test.” Abbott, in a statement, stood by the test and criticized a paper by doctors at NYU Langone posted online earlier this week that claimed the Abbott system had reported as negatives “a third of the samples detected positive” by a widely used, but slower system. “We’re seeing studies being conducted to understand the role of ID NOW in ways that it was not designed to be used,” Abbott said. “In particular, the NYU study results are not consistent with other studies.”

And House Speaker Nancy Pelosi is pushing ahead with a vote on a new $3 trillion virus relief bill today despite slim chance of the bill becoming law. Still, key parts of the bill, including aid to states, more payments to individuals—a measure the White House is likely to support—and more unemployment insurance, should generate enough public support that the GOP will be forced into negotiations on another round of coronavirus stimulus. “I am optimistic that the American people will weigh in and make their views known,” Pelosi said on Thursday, deflecting questions about pressing ahead with the legislation without any active negotiations with Senate Majority Leader Mitch McConnell, who has argued that Congress should wait and see the impact of the $3 trillion in stimulus funds already passed before enacting another package, but conceded yesterday that “there is a high likelihood that there will be another bill.”

Stocks We’re Watching

Teranga Gold Corp (OTC: TGCDF): Teranga Gold shares are up more than 10% this morning after the gold miner delivered Q1 results, reporting a 27% increase in gold production in the quarter to 91,312 ounces, a 46% increase in revenue to $134.1 million, and a 4% increase in gross profit to $39.5 million. “This was Teranga’s first full quarter with two operating mines and we are pleased to report strong revenues, profits and quarterly production,” said Richard Young, Teranga President and CEO. “While approximately 23,600 ounces of gold bullion inventory remained unsold at March 31, 2020, COVID-19 related shipping delays have since been addressed, and gold bullion is being shipped and sold on a regular basis. I would like to thank our team members for their dedication in resolving these challenges while delivering a solid quarter and strong start to the fiscal year. Barring any unforeseen issues related to the pandemic, we expect to meet our original production guidance for 2020.”