Productivity in making air conditioners, refrigeration equipment, and furnaces

Monthly Labor Review, Dec, 1984 by Horst Brand, Clyde Huffstutler

Output per employee hour in the manfacture of air conditioning, refrigeration, and warm-air heating equipment rose at an average annual rate of 1.3 percent between 1967 and 1982, compared with 2.4 percent a year for all of manufacturing. Output climbed 3.4 percent a year during the period, and employee hours, 2.1 percent. (See table 1.) Strong expansion in the demand for the industry's residential, commercial, and industrial products, and rapid diffusion of basic improvements in metalworking technologies (such as numerical control and computer numerical control) were among factors underlying the rising productivity trend.

The improvement in the industry's productivity occurred mostly in the earlier part of the period reviewed. After 1973, output per employee hour did not change, as shown by the following tabulation of average annual rates of change:

The industry's productivity rate for the 1967-73 period was 50 percent again as high as for manufacturing, but thereafter the trends in the two rate diverged.

Year-to-year swiings in the industry's productivity were comparatively moderate. These swings ranged between a 9-percent increase in 1972 and a 16-percent decrease in 1972. Year-to-year increases in productivity outnumbered decreases by 12 to 2 (no change was recorded for 1973). In the years when productivity dropped, output dipped less than employee hours. Tnus, in 1975 and 1980, productivity declined 16 percent and 7 percent while output dipped 34 percent and 16 percent, and employee hours, 22 percent and 10 percent. In 1974, productivity rose as a 6-percent decline in output was outdistanced by a 9-percent decline in employee hours. Output and demand

The manufacture of air conditioning and refrigeration equipment and of warm-air furnaces involves the production of heat transfer apparatus for residential, commercial, and industrial applications, as well as for hospitals, marine vessels, freight and passenger vehicles, and many specialized applications. Heat transfer equipment here includes unitary air conditioners (units that operate on electric circuits of their own); room air conditioners; commercial regrigeration equipment (including frozen food display cases); as well as heat pumps and dehumidifiers. The industry, in addition, manufactures compressors and condensers, not only for its own final output, but also for home refrigerators (classified by the Bureau of the Census as a separate industry.)

The industry's output rose at an average annual rate of 3.4 percent between 1967 and 1982. The rate for the earlier part of the period ran four times higher than that for all manufacturing, but dropped below the all-manufacturing rate during 1973-82:

Among reasons underlying the industry's output growth, and underpinning it after 1973, have been exports. As a proportion of value of shipments, exports by the industry nearly doubled between the earlier and the later period studied here--from 8 percent to 14 percent (reaching 19 percent in 1982). For manufacturing as a whole, the export share in the value of shipments increased less markedly--from 6 percent in 1972 to 10 percent in 1980.

The much slowed expansion in the industry's output from 1973 forward corresponds to trends in the output of its major product groups, which in turn parallel the trends in underlying demand from the industry' most imiportant markets.

thus, the production of heat transfer equipment other than unitary or room air conditioners or warm-air furnaces increased at a rate nearly 10 times higher over the 1967-73 period than during the 1973-82 span. The increase in the rate had resulted largely from strong demand for motor vehicle air conditioners (which account for more than one-half of the products in the group). Such demand was associated with an increase in motor vehicle output of close to 6 percent a year in 1967-73. The subsequent tapering of output growth mirrored a falling-off in the annual rate of motor vehicle output by -1.0 percent for 1973-82.

Likewise, output rates of growth of unitary air conditioners and commercial refrigeration equipment slowed after 1973; for warm air furnaces, the rate declined. This pattern was linked largely to developments in construction (which accounts for well over one-third of the demand for the industry's products). The average annual rate of change in the constant-dollar value of new residential housing construction, for example, declined from around 9 percent for 1967-73 to 2 percent thereafter; that for commercial structures, from 15 percent to 9 percent; and that for hospitals (public and private) turned from a 5-percent annual gain to a 4-percent annual decrease. Only industrial construction evidenced a contrary trend, with a 10-percent annual decline in the earlier period giving way to a 3.5-percent annual rise after 1973.

Leaving aside the medium-term swings, the industry's output has been sustained over the longer run by rapidly growing use of central and room air conditioning in homes, as well as more gradual increases in offices and other commercial space, hospitals, and probably in factories. Increases in the size of homes and other structures generated the shift in demand from room air conditioners to central systems and spurred the demand for warm-air furnaces, which function through the same air circulation system as central air conditioners. In the middle and late 1960's, 28 percent of all new homes were equipped with central air conditioners; that proportion rose to 43 percent between 1970 and 1975, and to 66 percent by 1982. Square footage per new home, to which the size of heat transfer equipment is linked, increased 9 percent between the mid-1960's and the early 1980's. The proportion of homes wired for room air conditioners more than doubled between the mid-1960's and the mid-1970's, to 53 percent, but it did not rise much thereafter. Warm-air ducted heating systems in occupied housing units rose by about one-third between 1970 and 1975, but by only 7 percent between 1975 and 1980. For offices, shoppihng centers, and hospitals, pertinent data on air conditioning and forced warm-air systems are available only fore some recent years. According to a survey conducted in the early 1970's, 91 percent of all commercial office buildings had central air conditioning, and 67 percent had forced-air heating systems. For shopping centers, the comparable figures were close to 100 percent in 1977; and for hospials and nursing homes, they read 97 percent and 56 percent in 1975. These data suggest that industry output is sustained not only by the net increase in such structures, but from replacement and retrofitting with more energy-efficient equipment as well. In 1981, for example, more than half of total residential expenditures on air conditioning and heating systems were for replacement.