A furniture-manufacturing hub around Elvis Presley's hometown in Mississippi potentially offers an answer to one of the top questions facing the U.S. economy: Will employers hold on to workers as demand slows, or shed the staff they fought so desperately to hire during the pandemic?
If American businesses can resist laying off workers in the face of declining sales at the scale they did in past downturns, the country has a better chance of skirting a deep recession.
Furniture manufacturers in the Tupelo area have already been hit hard by a slump, with orders declining by at least 25% in a few months, according to local executives. How the industry responds may prove to be a test case for a Federal Reserve that's trying to cool the economy without triggering a surge in unemployment.
The good news: companies there are trying their best to keep workers, though not all have been able.
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"We don't want to reduce our staff, because it'll be hard to lure them back when things do turn around," said Rusty Berryhill, president of Kevin Charles Fine Upholstery, a manufacturer in nearby New Albany. "If we laid people off, we'd lose some of our credibility as a company that values its associates."
The company kept its 126 workers after output fell by about quarter from late last spring, but it has dropped several positions through attrition and shifted to a 36-hour week from 40 hours.
Forty-five minutes away in Nettleton, power-recliner maker HomeStretch Furniture isn't planning to dismiss people either. President Skipper Holliman has responded to the sudden drop in orders by leaving vacant around 30 positions after workers quit and by scheduling occasional three- and four-day weekends for his crew of 450 people.
"When you lose people, it could be very hard to get them back because of what everybody's been through the last couple years," he said.
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Workers in the area aren't avoiding cuts altogether. Two large local manufacturers are removing almost 600 jobs combined. One of them, Southern Furniture Industries, tried trimming employees' hours first, but eventually decided the better option was to let 280 workers go while maintaining a full paycheck for the remaining ones, Chief Executive Officer Mark Weber said.
Overall, the labor market around Tupelo — Elvis's birthplace — shows that firms will go to great lengths to avoid dismissals. They're still reeling from months of struggles to fill vacant positions when demand was booming for the mid-priced sofas made locally, fueled by a pandemic-era buying frenzy.
Nationwide, labor demand remains robust — a resilient spot in an economy that is losing steam as 40-year-high inflation eats into household budgets. The July U.S. jobs report Friday is expected to show payrolls climbed about 250,000 and the unemployment rate held at 3.6%, near a generational low, forecasts showed as of Wednesday.
The jobless rate is expected to rise to 4.2% in the fourth quarter of next year, based on the median of economists' forecasts compiled by Bloomberg — a relatively low level compared with past downturns.
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With job openings still elevated — even after they dropped the most in June since the start of the pandemic — economists say the pandemic-era aversion to job cuts could soften the blow from the economic slowdown.
"I do think there's a potential for labor hoarding," said Matthew Luzzetti, Deutsche Bank AG's chief U.S. economist. That "could mean that we don't see the effects in the labor market take place for a longer period of time."
Fed officials also subscribe to that theory. Fed Governor Christopher Waller recently pushed back against economists Olivier Blanchard and Lawrence Summers, after they argued the central bank would be unlikely to cool labor demand without a "painful" spike in unemployment.
The abundance of available jobs should allow for lesser unemployment "than would be expected in the ordinary course of events," Chair Jerome Powell said last week. "This time could be different."
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The calculus that the current slowdown won't follow the traditional template has its limits. Companies in sectors like technology and real estate have announced tens of thousands of job cuts in recent months, while others are freezing hiring.
Middle- and working-class customers who buy the lower-priced sofas made in Tupelo are pinching their pennies, local managers say. In North Carolina and Virginia, where higher-end, custom-order furniture is upholstered, executives are wondering when their own clients might curb spending.
Craftmaster Furniture in Hiddenite, North Carolina, which sells sofas in the $1,000 to $2,000 range, isn't planning any cuts among its 750-person team. However, that could change if a recession is steep and extended.
"Inflation right now is the driver," CEO Roy Calcagne said.
Yet even if unemployment increases, some firms will have difficulty hiring employees with the skillsets they need, said former Fed Governor Randall Kroszner, now a University of Chicago Booth School of Business professor.
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"In a normal downturn, firms say 'it's much easier, we're in the drivers' seat now,'" said Kroszner, who anticipates the jobless rate will rise above 5%. "It's not going to be exactly like that this time."
Michael Gapen, head of U.S. economics at Bank of America Corp., sees the country entering a recession later this year — earlier than many other economists — and unemployment peaking at 4.6% next year.
"You don't have to actively fire," Gapen said. Industries that are hit harder will likely cut jobs, but "other firms and other sectors may say, 'We're just going to freeze for a little bit. We might get some natural attrition and then we'll let this play out.'"
For workers hearing about job losses in their communities, it still feels like a normal downturn.
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"Nobody's ordering. People are canceling their orders," said Janet Voyles, 59, a 10-year veteran of Kevin Charles in New Albany, setting aside her sewing machine for a short moment to reflect on the local economy.
While confident she's safe in her job, Voyles is cutting spending: "We're blessed here at this factory. Because so many people are are out of work."
