The United States economy is full of innovation. It has to be. Manufacturing industries that dominated the economy decades ago - textiles, televisions, even automobiles to a large degree - have moved overseas, where labor and materials costs are lower. Yet the U.S. economy, even during the pandemic and the current period of high inflation, has expanded to record levels. If U.S. corporations weren't innovating, creating new products (such as vaccines and AI) and services (such as Zoom calls) and moving into new markets, the domestic economy would not be growing, and capital would not be flooding into the country. The current high level of the U.S. dollar relative to currencies around the world attests to the confidence that global investors have in the durable and innovative U.S. economy.

The Bureau of Labor Statistics (BLS) reported that the U.S. economy generated a whopping 303,000 new jobs in March, well above our forecast of 180,000 and the consensus of 200,000. February's result was revised lower to 270,000 from 275,000, but gains in February and January combined were revised higher by 22,000. March's increase in payrolls and the revisions to February and January took the three-month average to 276,000, which is above the 12-month average of 231,000 and continues to signal a very robust job market. The unemployment rate dropped to 3.8% from 3.9%, which remains below the threshold for triggering the widely followed Sahm Rule recession indicator. Average hourly earnings increased 12 cents month-to-month and are now 4.1% higher year-over-year (compared to 4.3% in February). The average workweek rose to 34.4 hours in March from 34.3 hours in February. Job gains occurred in healthcare, government, and construction. Employment showed little change over the month in mining, quarrying, and oil and gas extraction; manufacturing; wholesale trade; transportation and warehousing; information; financial activities; and professional and business services. After this morning's report, S&P 500 stock futures rose slightly from pre-release levels. The yield on the 10-year Treasury moved higher to 4.40% from 4.33%. Before the release, futures contracts suggested a 94% probability that the Fed will keep the funds target at 5.25%-5.50% when it meets on April 30 and May 1. After the release, there was little change. The chance that the funds rate will be lower after the June meeting (either by 20 or 50 basis points) dropped to 57% from 64%.

Costco operates a membership-based, no-frills retail model, predicated on offering a select product assortment in bulk quantities at bargain prices. The firm avoids maintaining costly product displays by keeping inventory on pallets and limits distribution expenses by storing its inventory at point of sale in the warehouse. Given Costco’s frugal cost structure, the firm is able to price its merchandise below competing retailers, driving high sales volume per warehouse and allowing the retailer to generate strong profits on thin margins. Costco operates over 600 warehouses in the United States and boasts over 60% market share in the domestic warehouse club industry. Internationally, Costco operates another 270 warehouses, primarily in markets such as Canada, Mexico, Japan, and the UK.

Costco operates 861 stores, for paying members, averaging 147,000 square feet each. Fees from the company's cardholders provided about 2% of its $242 billion in total FY23 revenue. Based in Issaquah, Washington, the company ended 4Q23 with 591 stores in the U.S. and Puerto Rico, 107 stores in Canada, 40 in Mexico, 29 in the United Kingdom, 33 in Japan, 14 in Taiwan, 18 in Korea, 15 in Australia, four in Spain, one in Iceland, one in New Zealand, and one in Sweden, two in France, and 5 in China. About 40% of sales are sundries (including candy, alcohol and tobacco); 13% fresh food; 26% non-food including hard-lines (such as electronics and appliances) and soft-lines (including apparel and jewelry); and 21% other ancillary businesses, including gas stations, pharmacy, optical, hearing aids and printing. International stores represent about 27% of total sales and 34% of operating income. At the end of 4Q22, Costco had approximately 126 million square feet of floor space. Online sales represent approximately 7%, and gas stations represent about 13% of company sales. The company's fiscal year ends on the Sunday closest to August 31. FY23 was a 53 week year. The company's fiscal calendar has 12 weeks in each of the first three quarters and 16 weeks in 4Q.