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issue: January 2006 APPLIANCE Magazine

54th Annual Appliance Industry Forecasts
2006 Shipments Should Stay Strong

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by William G. Sutton, president, Air-Conditioning & Refrigeration Institute (ARI)

It has been another great year for our industry. We will likely close 2005 with record shipments of more than 8 million central air-conditioners and air-source heat pumps, a jump of more than 9 percent over 2004.

This comes thanks in part to the ever-increasing housing demand, which was stronger in 2005 than most experts anticipated, largely because mortgage interest rates remained lower than expected.

In fact, according to the Commerce Department, last October sales of new single-family homes shot up by 13 percent, the biggest one-month gain in more than 12 years. The increase pushed sales to an all-time high-1.42 million units. This increase in home sales baffled analysts who had been predicting that new home sales would decline by 1.8 percent, reflecting continued increases in mortgage rates.

However, experts agree that mortgage rates will most likely turn up in 2006. Higher rates reduce the size of a loan for which a borrower can qualify and can slow new construction. They can also curtail refinancing, which provided lots of cash in 2004 for remodeling projects and replacement of obsolete heating and cooling units.

Still, a general improvement in consumer confidence-backed by increases in employment and incomes-should support housing demand that is moderately below 2005 levels during 2006. Thus, the current forecast anticipates only a moderate decline in housing sales and construction between now and the end of this year, which means air-conditioner shipments should still remain strong.

For some manufacturers, 2005 shipments did not fair as well as those of air-conditioners and heat pumps. Shipments of water-source heat pumps had no change from 2004 and shipments of central station air handlers were down 2 percent. Other products, however, faired better. Shipments of heating and cooling coils rose 3 percent, shipments of package terminal heat pumps rose 4 percent and shipments of package terminal air-conditioners were up 10 percent from 2004.

The commercial refrigeration industry scored a big hit last August when Congress passed first-of-their kind national energy efficiency standards for commercial refrigeration, large packaged or rooftop air-conditioners and commercial ice-makers. These new standards will replace a patchwork of state requirements and save the nation 8,000 MW of peak power by 2020, or an additional 27 power plants. This accomplishment is good for the consumer, good for the environment, good for the industry, and good for the nation.

Manufacturers of chillers used for comfort cooling in buildings last year replaced or converted 2,829 units that use chlorofluorocarbon (CFC) refrigerants, leaving an estimated 33,200 chillers still using CFCs. ARI manufacturers estimate there will be 130 conversions and 2,860 replacements during 2006, bringing the total converted and replaced to 66 percent of the estimated 80,000 CFC chillers in use at the end of 1995.

Non-CFC chillers use alternative refrigerants accepted for use by the EPA. They include units with hydrofluorocarbons, HFC-134A, HFC-410A and HFC-407C, and hydrochlorofluorocarbons, HCFC-123 and HCFC-22. To avoid emissions to the atmosphere and encourage recycling of refrigerants, EPA rules prohibit the venting of CFCs, HCFCs and HFCs. This requires the recovery of these refrigerants and promotes the reclamation of these refrigerants for re-use and sale when they meet purity limits set in ARI Standard 700 - Specification for Fluorocarbon Refrigerants.

The pace of the CFC chiller phase-out has been slower than expected due in part to federal tax laws, which require depreciation of 39 years for chillers. Congressman Peter Hoekstra (R-Michigan) and our partners at the Air Conditioning Contractors of America (ACCA) have introduced H.R. 1241, the Cool and Efficient Buildings Act. This bill would accelerate the depreciation period from 39 years to 20 years for new HVACR equipment installed in non-residential properties. This would help save energy by phasing out older, less efficient equipment, and reducing operating costs for building owners.

According to Representative Hoekstra, "The current 39-year depreciation period on HVAC/R systems is not reflective of their average life span, and it is not cost-effective. The Cool and Efficient Buildings Act will provide an incentive for businesses to invest in new equipment, which will save businesses money in the long run and provide another stimulus to the U.S. economy."

A wide range of non-residential buildings, including offices, malls, airports, and factories would qualify for the new depreciation rate. These are buildings where HVAC/R equipment, from large tonnage liquid chillers to unitary air-conditioners and heat pumps, play a key role in increasing productivity and making the use of heat sensitive computers and telecommunications gear possible.
The outlook for shipments of new large-tonnage liquid chillers is brighter now than in past years thanks to better prospects for the economy and their installation in offices, malls, hospitals, airports, factories, sports complexes, government buildings, and institutions.

Our industry produces in excess of U.S. $15 billion of product, employs 130,000 people and supports 800,000 dealers and contractors. And penetration of our products in homes continues to rise, with almost 9 homes out of 10 relying on our products for their comfort. The U.S. population is expected to increase by about 30 million by 2010 and this industry is well positioned to help improve the quality of life and the state of the environment at home and abroad through the production of high quality equipment.


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