The labor market continued to show resilience in May.

Unemployment rose to 3.7% from 3.4%, but the U.S. economy continues to add jobs at an unexpectedly strong rate (more on this in our news section).

Meanwhile, stocks continue to move higher in 2023, with the tech-heavy Nasdaq up nearly 30% year-to-date after last year’s carnage 🤯

Our Chart of the Day shows how mighty some of the biggest companies have become.

— Matthew

Here’s the rundown:

Today, we'll discuss two items in the news:

• Everything you need to know about the current labor market

• U.S. bans new oil and gas leasing

• Plus, our main story on the popular business of Lululemon

All this, and more, in just 5 minutes to read.

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IN THE NEWS

💪 Strong Jobs Data Paints a Messy Picture for Economists (FT)

The economy’s resilience continues to stump, well, just about everyone. Early last year, as the Federal Reserve began hiking rates to slow the economy to fight inflation, calls for an impending recession grew louder and louder — many thought they would go “too far” and “break something” (which might still happen).

But the job market, a backbone of economic growth, hasn’t gotten the message: The U.S. added some 339,000 jobs in May, trouncing expectations closer to 200,000, and the Bureau of Labor Statistics revised up its estimate for the number of jobs added in April by 93,000.

• The job-finding site Glassdoor’s chief economist was less impressed, saying, “There are clear signs the labor market is still hot, though it’s cooling. When you look under the hood of the report, permanent layoffs are rising.”

In fact, many of those job gains may have come from the decline in self-employed Americans becoming…no longer self-employed. During the pandemic, everyone wanted to work for themselves, with the number of self-employed people peaking at 9.51 million in mid-2021 from a low of just over 7.5 million in early 2020.

• Now, there are only 8.73 million self-employed workers in the U.S.

And despite the surprising increase in new jobs, some 440,000 people lost their jobs in May, too, pushing the unemployment rate slightly higher.

Why it matters:

As the Fed weighs whether to skip hiking rates for the first time in 14 months at its next meeting in June, this jobs report will be top of mind. After the data was released, markets put about a 45% chance on a June rate hike, with a hike of 0.25% by the July Fed meeting looking like a near certainty.

• One chief investment officer commented, “The numbers today are likely only going to add fuel to the fire that the Federal Reserve has to raise rates once again.”

Still, a lack of wage growth acceleration, which is more correlated with inflation, offers a mixed picture to the Fed.

• The increase in average hourly earnings rates fell to 0.3% from 0.4% the month before, while the number of folks in their prime working years with secured employment moved up to 83.4% — the highest since 2007.

🏗️ U.S. Bans New Oil and Gas Leasing Around Native American Site (Reuters)

On Friday, the Biden administration implemented measures to prohibit new oil and gas leasing on federal land surrounding Chaco Canyon in New Mexico. It’s a significant Native American site, considered among the oldest in the U.S.

• But protecting the lands would lead to an estimated annual loss of $4.8 million in royalties for the federal government, according to the U.S. Bureau of Land Management.

Established in 1907 by Theodore Roosevelt, Chaco Canyon Park is designated as a UNESCO World Heritage site. Spanning approximately 30,000 acres across the high desert mesas of northwest New Mexico, the park is renowned for its extensive collection of pre-Columbian ruins.

• However, Native communities have expressed concerns over the past decade, fearing that oil and gas activities threaten the preservation of the park.

The move aligns with President Biden’s aim to conserve at least 30% of federal lands and waters by 2030.

Why it matters:

Following President Biden's initial 2021 proposal for safeguarding the area from drilling, Interior Secretary Deb Haaland disclosed that her agency would adhere to a prohibition on new oil and gas leasing in the region encompassing Chaco Canyon.

• "Today marks an important step in fulfilling President Biden's commitments to Indian Country by protecting Chaco Canyon, a sacred place that holds deep meaning for the Indigenous peoples whose ancestors have called this place home since time immemorial,” said Haaland.
  

• The decision effectively shields public lands within a 10-mile radius of the park from oil and gas leasing over the next 20 years, but it doesn’t affect existing oil and gas leases on the land or drilling on private property.
  
  

HEADLINES

 🛰️ Pentagon to buy SpaceX’s Starlink satellite internet terminals for use in Ukraine

📱 Telecom stocks fall as Amazon considers offering mobile service for Prime users

😳 Don’t store cash on Venmo or CashApp warns U.S. regulator

CHART OF THE DAY

Lululemon: From Yoga Brand to Gen Z Favorite

$50 billion back pain

In 1998, after Chip Wilson sold his snowboard company, he contemplated his next move. At 42, he wanted to find something new to build, something meaningful, in the next phase of his career. His answer came through pain.

Many of the best businesses start accidentally, and Lululemon (LULU) is no different. Wilson was feeling back pain, so he took up yoga. He noticed that many young women in his classes didn’t have quality, functionally athletic clothing specifically designed for yoga.

Wilson had worked with fabric to make underlayers for female snowboarders, so he was familiar with the space.

He developed a black stretch yoga pant that was comfortable, light, and quality, which made Lululemon a global brand and helped define the “athleisure” market.

The idea from yoga class has made Wilson very wealthy. He’s now worth about $5 billion, thanks largely to his stake in Lululemon, whose share price has risen more than 200% in the last five years.

• It has a roughly $50 billion market cap and continues to be among the most popular brands among Millennials and Generation Z.

A Piper Sandler survey last year found the yoga-themed chain, which has since ventured into men’s clothing, reached the No. 2 favorite apparel brand spot, behind Nike.

“Each day I walked into the office and asked myself, ‘If I had to compete against Lululemon, what would I do,’” Wilson has said. “This allowed me to cannibalize what was working today for what would be best for the future.”

Observer

Wilson was ahead in building the brand before the mindfulness, exercise, and “yogi” culture took off in the past decade.

He saw trends early because he was going to yoga, allowing him to spend time with “yogis.” He found out what they wanted first-hand.

To design clothing for running, training, and skateboarding technical apparel, he spent time with the people in that scene to understand them. He saw into the future by hearing what people wanted, then extrapolated that into a business.

Get specific

While Lulu has a variety of customers today, it originated as a very specific, exclusive clientele: young, professional women who valued health, nutrition, and fitness. From the beginning, Wilson got specific about his target market and didn’t try to appeal to everybody.

A pair of pants usually costs $100, but one of Lulu’s policies is that customers can exchange a pair for a new replacement anytime there’s a hole or wear and tear.

• The policy hurts Lululemon in the short run but keeps its loyal customer base returning to its stores over and over in the long run.

45 minutes a day

Wilson wrote in his memoir, Little Black Stretchy Pants, that he wanted to help customers wear the same comfortable pants all day.

He writes: “…what I really saw was the possibility of customers using our [pants] not just for yoga but walking to the studio or gym and back… [Customers'] valued time above all else. If they could go to a yoga class then to coffee and then shopping without needing to change between activities, I could save them 45 minutes a day.”

Top operating margins

Credit slick marketing for Lululemon’s rise, including savvy campaigns. The company has also been a favorite among investors because it posts some of the best operating margins in the industry.

A core tenet of Lululemon’s success is from Nike’s playbook: direct-to-consumer. The so-called “DTC” division, which includes online sales, got a big boost during the pandemic and continues to excel.

Direct sales are much more lucrative for Lululemon because there’s no expensive overhead; without intermediaries, Lululemon sells directly to its almost cult-like following of (mostly) upper-income customers.

• The company’s financials are healthy, with revenues increasing by more than 35% yearly since 2004.

The early innings

This week, Lululemon beat on the top and bottom lines and expects to see full-year revenue of $9.44 billion to $9.51 billion.

• China revenue alone grew 79% from the year-earlier period when the country was reeling from Covid restrictions.

Lululemon has raised the price of its clothing over the years, but it knows its target base can afford the hikes – and they’re willing to pay up for quality. Lulu says it has seen no changes in its customers’ shopping habits.

“We’re in the early innings of our growth,” CEO Calvin McDonald said last year. “People want technical apparel that performs, and that’s what we provide, obsess about, and that’s what we innovate for. That’s the group we’re going after.”

Dive deeper

Here’s Wilson’s Ted Talk on building a legacy in the digital age.