An analysis of the heating and cooling industry indicates continued growth for the coming year.

Anyone who thinks 1999 was a pretty good year for the HVAC industry should probably get ready for some more.

Air conditioning shipments could hit new records. "Manufacturers in 2000 could achieve a third successive record year if shipments of central air conditioners and heat pumps beat the estimated 6.5 million units shipped in 1999," said Edward W. Dooley, vice president/communications for the Air-Conditioning & Refrigeration Institute. "The odds look good for a 6.6 million-unit year in 2000 given the lowest unemployment rate in decades, healthy consumer confidence, heavy demand for replacements and the very strong housing market with special emphasis in the South where heat pumps do well.

"Reciprocating liquid chillers probably dropped below 1998's record shipments and the trend for large tonnage liquid chillers continues downward," he continued. "It will likely take almost a decade to replace the estimated 47,800 CFC chillers with non-CFC centrifugal and screw chillers now that shipments have dropped below 7,000 units, although that is almost twice the annual shipments achieved 20 years ago."

On the other hand, Honeywell Home & Building Control, which issues a semi-annual industry forecast, expects shipments to drop.

"Slower housing markets and an easing in the rate of replacement will reduce demand for unitaries this year, and industry shipments are expected to decline by 8%," states the January 2000 report, authored by Honeywell's Donna Schreck.

"Volume will still exceed 6 million units, however. Replacements are unlikely to return to 1999 levels until 2003, as activity over the course of the recent housing boom has satisfied pent-up demand for more energy-efficient equipment and reduced the number of units at risk of failure over the next two years," according to the report. "Therefore, factory shipments of unitary air conditioners and heat pumps are expected to average between 5.8 and 5.9 million units annually over the remainder of the five-year projection period."

Similarly, Honeywell expects shipments of heating equipment to be off. Shipments of heating equipment probably finished 1999 up 3% to almost 5.65 million units.

"Manufacturers will begin to adjust to longer-term volumes of about 5.3 million units annually, some 5% short of last year's record but still be very healthy by historical standards."

Honeywell's Schreck is forecasting that gas furnace shipments will average nearly 2.9 million units over the next five years and boiler shipments will average 189,000 units annually.

The Gas Appliance Manufacturers Association predicts a slight downturn in 2000 shipments of gas furnaces and boilers but rising in 2001 through 2003. Shipments of residential gas and electric water heaters will increase in 2000 and continue through 2003.

Vent-free gas fireplace shipments are projected to increase from 84,167 in 1999 to 107,167 in 2003.

Wholesalers cautious

Industry wholesalers are again taking a cautious approach to the coming year's business.

The Northamerican Heating, Refrigeration and Airconditioning Wholesalers Association recently released its forecast for the first three quarters of 2000. Citing UCLA Anderson forecasters, the association said that the increase in the federal funds rate could lead to a rise in long-term interest rates, slowing down construction and durables. This rise in rates could tone down consumer optimism. Growth in real consumer spending for goods and services may slow to 2.7% in 2000, as compared to 4.9% growth in 1999, meaning fewer house purchases in 2000.

Based on these findings, while median sales growth for the association's members stayed between 10% to 13% in 1999, NHRAW predicts much slower growth for 2000. The first quarter could see a 3% growth in total dollar sales compared to 11% in the first quarter of 1999; the second quarter may have no growth compared to 10% in 1999; and a median 8% growth in the third quarter, compared to 10% in 1999.

Wholesalers for the most part agreed with NHRAW. Stephen Neatherly, of R.E. Michel (Glen Burnie, Md.), said that any predictions for 2000 would be cautious. "R.E. Michel has had three record-breaking years, above the industry norm," he said. "How long can it continue? No one here is pessimistic, just realistic."

Gary Daniels, senior vice president/marketing and merchandising at Johnstone Supply (Tigard, Ore.), said that while Johnstone will continue to grow in 2000, the same might not be true of smaller wholesalers.

"It used to be that smaller distributors could handle one bad year, but they are leaner now and some are not as healthy as they once were," he explained. "Back-to-back mild seasons could severely impact them. A poor winter could leave a small wholesaler with a lot of inventory at the end of the heating season. This affects how much inventory he could carry in the summer."

But John Rynecki, vice president/marketing at Sid Harvey Industries (Garden City, N.Y.), was much more positive about the coming year.

"The HVAC industry is going to be healthy in 2000," he said. As long as mortgage rates are stable, homeowners will be willing to upgrade heating-and-cooling equipment. In fact, he sees sales strength continuing in the replacement market.

All the wholesalers agreed that weather and the nation's economy would play an important part in any growth for 2000.

"Mother Nature controls more than we'd like," Rynecki said.