The year is more than half over, and air conditioning and heat pump unit shipments are on track to bring 2018 numbers closer than ever to 2005’s record-breaking 8.3 million combined units shipped. Year to date, the combined shipment number surpasses 5.5 million units, which is a 6.5 percent increase over the more than 5.2 million units shipped during the same time period in 2017. Monthly combined shipments rose 7.9 percent in May, 3.8 percent in June, and 7.3 percent in July 2018 as compared to 2017.
According to the Air-Conditioning, Heating, and Refrigeration Institute’s (AHRI’s) historical data, the year of 2005 marked the height of the past 20 years (since 1998) for combined air conditioning and heat pump shipments. Previous to that record-breaking year, combined shipment numbers remained above 6 million. Once the housing bubble popped in 2006 and the Great Recession began in 2007, a steady decline in combined shipment numbers occurred, bottoming out in 2010 at 5,061,354.
According to the Federal Reserve, the Great Recession started in December of 2007 and lasted through 2009. Unemployment was high, and consumer confidence was low, each contributing to the fact that combined shipment totals remained below 6 million from 2008 through 2013. In 2014, combined shipments jumped to 6.46 million units, up from the 5.89 million units shipped in 2013. And since then, the market hasn’t looked back.
When separating the air conditioner shipments from the heat pump shipments, the story is much the same for unitary. Year to date, air conditioners increased 3.6 percent from 2017, and heat pumps increased 12.4 percent. The 2005 height of the unitary market reached 6,470,976 units. Previous to the 2005 record-breaking year, unitary numbers were above 5 million in 1999 and 2000 as well as every year from 2002-2004. For six out of the eight years previous to the housing market crash — 1998-2005 — unitary shipments were over 5 million units. In 2006, unitary shipments dropped to 4,950,827 units. It steadily declined to 3,419,290 in 2010, where it reached its lowest number since 1998. It took until 2013 to break the 4 million unit threshold again and has steadily climbed, reaching a 5.1 million height in 2017.
The air-source heat pump shipments experienced an increase in 2006 and 2007, totaling more than 2 million units shipped. This helped the combined shipment numbers to decline more slowly than the individual unitary numbers did at the time. However, from 2008-2014, shipments numbers dipped back below the 2 million mark. Finally surpassing that threshold in 2015, air-source heat pumps are on the rise again, with 2017 marking a record-breaking year at 2,619,782 shipments.
“Advances in heat pump technology have helped to increase the number of installed units farther north across the country,” said Nathan Walker, senior vice president of corporate marketing for Goodman Mfg. Co. “Also, the phaseout of R-22 refrigerant to R-410A has supported the growing number of air conditioner and heat pump shipments. Rather than repairing an older, less efficient unit, homeowners are electing to replace with new technology.”
The cause of the continued increases stems from multiple factors, but one of them is the improved general health of the current economic market.
“The rise in unit shipments can clearly be attributed to the burgeoning economy, which is growing at a furious pace,” said Francis Dietz, vice president of public affairs at AHRI. “That, combined with the tax reform act passed by Congress last year, has been a real boon for our industry.”
More factors than the economy and new technology are contributing to the continued success of the HVAC market. A combination of direct and indirect factors are influencing shipments, installations, and current HVAC trends.
According to Liz Haggerty, vice president and general manager of ducted systems, Johnson Controls Inc., some of the other key growth drivers include increased housing starts, aging of the installed base, weather, energy efficiency demand, and natural disasters.
“Housing starts have been increasing each year for the past eight years and have grown at 7 percent compound annual growth rate the last three years,” she said. “Existing home sales remain strong at a 5.4 million annualized rate, some of the highest levels in the last seven years. Couple that with strong replacement demand — 30 to 35 million units will need to be replaced over the next five years — and this is what is driving a continued uptrend.”
As explained by multiple manufacturers, when the housing market crashed and the economy took a downturn, many consumers couldn’t afford to replace their aging systems. This trend pushed for three to five years after the recession and created a demand that was delayed by lack of consumer finances and confidence. Instead, the industry witnessed a trend of increased repair demand in the HVAC marketplace. Consumers were either unemployed or cautiously stretching every dollar, as many tried to avoid large purchases. Now that unemployment is down and consumer confidence is returning, there is a fair amount of pent-up demand for the replacement of these old systems that were previously delayed.
“People now realize that they are able to replace their old systems, as opposed to just trying to do what they can to get by with and repair their systems,” said Amy Gebrian, product manager for residential air conditioners and coils at Lennox. “Where we may have been a little lower with replacements in the past, we really have been making up for it in the last couple years. It has been a two-pronged impact. We took a little bit of a hit in the late 2007-2011 period, but we are now able to reap the benefits of this catch-up mode the industry finds itself in. I think the entire industry has been able to benefit from this.”
Weather is another factor that influences the HVAC industry’s shipment numbers, and with spring and summer 2018 in the books, weather records have already been set across the nation. According to the National Oceanic and Atmospheric Administration (NOAA), this summer ranked the fourth hottest on record for the contiguous U.S., tying with 1934. NOAA has been tracking weather and ranking the results since 1895, and the average summer temperature for the contiguous U.S. was 73.5°F this year. That is 2.1° above average for June through August.
August itself was a scorcher, as the average temperature was 73.6° across the contiguous U.S. It hits the record books as the 17th hottest August of record. June and July did their parts to increase the overall temperature average as well. The months registered 71.5° and 75.5° average contiguous U.S. temperatures, respectively. June was 3° above the 20th century average, with only 1933 and 2016 having a warmer June. July was 1.9° above the 20th century average and tied with 1998 as the 11th warmest July on record.
It wasn’t just a hot summer though. NOAA considers spring to be the months of March through May and ranked this year as the 22nd warmest spring on record. The seasonally averaged temperature for the lower 48 states came in at 52.4°, which is 1.5° above average.
Other spring observations looked at regional records. The Southwest and Southern Plains had one of their 10th warmest springs on record. But it was a different story in the East, Great Plains, and Midwest, which had some of the coldest Aprils and then some of the warmest Mays on record.
NOAA said the first five months of the year were marked by large month-to-month swings in temperature, but after averaging the contiguous states, the overall temperature for that five months came to 45°. This is 1.6° above the 20th century average, and that helped earn its place as the 21st warmest January to May on record. Overall it has been an above-average temperature year so far for the West, Southern Plains, East Coast, and much of the Midwest.
WHAT TO EXPECT IN THE FUTURE
The increased demand is expected to last throughout the rest of 2018 and into the next few years, according to several manufacturers. Each, however, had a different opinion as to what is next for the industry. Although none of them claimed to have a crystal ball, most saw the near term as exciting and the rest as an unknown.
“We anticipate the remainder of 2018 to remain strong and exceed our 2018 plans as we continue investing in all aspects of our business to ensure long-term growth for our shareholders,” said Tim Storm, heat pump product manager for Trane, Ingersoll Rand. “Any downturn in the economy or financial markets and the longer-term impact of the tariffs are wild cards for industry shipments, so we continue to monitor those areas very closely.”
Mike Branson, executive vice president and general manager, Rheem Air Division, noted that this industry is stable but that preparation for an unknown factor is important for every member of the HVAC industry.
“It has been 10 years since the Great Recession, and economists can say with confidence that another one is coming — they just cannot agree when that will be,” said Branson. “Inflationary pressure from commodities, parts, and transportation are all driving costs up, and we anticipate they will have a negative impact on shipments in future.”
Walker is expecting the growth trend to continue for five to seven years unless a substantial economic downturn occurs.
“My crystal ball is in the repair shop, so I am not able to tell you what will happen,” Walker quipped. “That said, I anticipate that during 2018, the HVAC market will continue to experience increased shipments. Beyond that, I believe it’s too early to tell.”
Gebrian made a final note as she pointed out that the industry is in a positive and good place at the moment, and she stressed that it is a growth opportunity.
“I think the fundamentals of the industry are strong, and there is still going to be growth,” she said. “The real question is going to be what level of growth we will experience.
“This is truly an exciting time to be in the HVAC industry,” she added.
Publication date: 10/1/2018