The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEBRUARY 19 56 business review I ■ FEDERAL RESERVE BANK OF PHILADELPHIA THE HEAT PUMP The heat pump is a climate machine that automatically makes your house a comfortable home through all kinds of weather. Using only electricity and air or water, it warms your house in winter and cools it in summer. It's safe, clean, and reliable. Yet to come is mass production needed to cut the cost and widen theimarket. THIRD DISTRICT BANKING— 1955 Record increase in bank loans partly offset by reduction in investments. Current earnings higher, but net profits decline. Additional copies of this issue are available upon request to the Department of Research, Federal Reserve Bank of Philadelphia, Philadelphia 1, Pa. THE HEAT PUMP A hundred years ago the heat pump was just an was the electric washer because it was Monday. idea. Today it is a reality. Within a decade it In answer to one of the doubting-Thomas type may be a big industry. of questions about the heat pump the hostess The heat pump is a device that pumps heat said: “ The only complaint I have with the heat into your house in winter and out of your house pump is that the home is so comfortable that my in summer. It burns no fuel and requires no weekend guests do not want to go home but want It uses only electricity and air or to stay with me all week. I can’t even get them water. The electrical connections are as simple out of the house to take a walk on the board as those for an electric range or dryer. In size the heat pump is comparable to the modern od walk.” Deep in January we called upon more resi chimney. or gas-fired furnace and just as sleek. Manufac dential heat-pump users to find out how they tured by the best-known electrical appliance man fare in cold weather. All of them were keeping ufacturers in the country, it can be installed in warm and all were apparently happy except the any house— old or new. The heat pump is a owner who put a thermometer in every room to climate machine that diffuses perpetual comfort test the heat-pump salesman’s promise of uniform throughout the entire house. It is automatic. heat throughout the house. When one of the seven rooms was found to be out of line by two When we first heard about the heat pump we thought it was one of the latest tales right out of degrees he squawked. a science-fiction publication. On further inquiry Safe, clean, and compact, the heat pump can we found a number of people already living in be installed almost anywhere in the house— in heat-pump luxury in Southern New Jersey. So to the basement, the utility room, Jersey we went and called at the homes of a garage. In cold weather, warm air flows through number of heat-pump users. Seeing is believing. metal ducts into every room of the house and the At the very first call in a home located just a same ducts also circulate cool air through the or attached few minutes’ walk from the beach in a suburb house in summer. of Atlantic City the hostess graciously conducted pump has no use for a furnace, fuel tank, or flue. us through her new home. It was a warm day in Neither does it need any other form of air condi August. The doors and windows were kept tioning. The heat pump is a combination heating closed. The heat pump was running, and so Thus, a house with a heat and cooling mechanism all in one package. 3 b u sin e ss re v ie w On house little or too much. Strange as it may seem there equipped with a heat pump is a conventional- a centrally located wall of the is always some heat in the atmosphere, even looking thermostat with an unconventional fea though it may be so cold that your teeth chatter. It has two controls instead of one. The It is only simple logic that air at 32 degrees “ heat” control is set at 75 degrees if the tem Fahrenheit is warmer than air in zero weather. perature of the house is not to fall below that The same reasoning tells us that air at zero is ture. point; and the “ cool” control may be set at warmer than air at 50 degrees below zero or even 79 degrees if the temperature is not to go above that point. You simply set it and forget it. colder temperatures. All we need is a method of extracting this heat, and with the new refrig Thereafter you are never cold and chilly in erants available today the heat pump can accom winter or hot and sweaty in summer. plish this task easily. Perhaps the accompanying illustration helps to clarify how the heat pump What goes? works. The “ works” of a heat pump are much like those of a refrigerator. In fact, the refrigerator Heat is where you find it in your home is a one-way heat pump. It sounds Heat pumps of the so-called air-to-air type are crazy but it’s true. It pumps heat out of the food designed to extract heat from the atmosphere. compartment into your kitchen. By placing your The heat so extracted is stepped up by the com hand on the outside coil, you can feel the heat pressor which supplements the heat taken from being thrown off. If you remove the door of the the air by the heat equivalent of electricity used refrigerator and push the open side up against to run the compressor. Naturally, the lower the a hole cut in the wall of your house, you have a outside temperature the harder the heat pump small-scale heat pump. It would take heat from must work to warm the house. Heat pumps come the atmosphere outside and warm your house. with built-in electric resistance units to supply On reversing the position of the refrigerator so additional heat and defrosting required in areas that the open side faces indoors, the machine where the winter temperature occasionally drops very low. would cool the house by removing the heat from the indoor air and rejecting it through the con The big advantage of the air-to-air heat pump denser to the outdoor air. Basically, all that is is that there is no place without air. needed to convert a refrigerator into a full-scale atmosphere is not the only source of heat; there heat pump is to install a bigger motor, a larger are also ground-to-air and pump called a compressor, a thermostat, and a pumps. set of valves to reverse the cycle automatically instead of physically turning the box around. But the water-to-air heat The earth itself is a good source of heat. In the ground below the frost line is a great reser Operating on the principle of a refrigerator, voir of heat at practically constant temperature. it is easy enough to see how the heat pump cools This natural heat sink can be tapped with a a house in summer; but how in the world does it ground-to-air heat pump. The way this works heat in winter? is to circulate a refrigerant through a system of Now, heat is a peculiar thing. It is hard to copper pipes buried four or five feet below the define; but anybody knows when he has too surface. The liquid refrigerant circulates through 4 b u sin e ss re v ie w HOW THE HEAT PUMP W O RKS SUMMER C O O L IN G the underground pipes where it picks up the ground heat. In so doing the refrigerant changes W IN T E R H E A T IN G water is merely borrowed for a few minutes to get its heat and then returned. into a gas which is made still hotter on going All three types of heat pump are in use today. through the compressor. Upon entering the con The water-to-air pump is, of course, limited to denser the hot gas gives up its heat to the house sections of the country where there is an abun heating system and in the process reverts to a dance of good, clean water. Many such pumps liquid and returns to the ground to pick up more have been installed in Florida where it is neces heat. sary to dig wells only 15 or 20 feet to get the So it goes—round and round, and the process is reversed for cooling. required water. The ground-to-air type of heat The water-to-air type of heat pump gets its pump has some drawbacks; it is costly to buy heat from a natural body of water such as a and bury several hundred feet of copper pipe in river, lake, or well. Well water is an excellent the first instance and it is expensive to dig up source of heat which seldom falls below 45 de the pipes in case of needed repairs. Much engi grees Fahrenheit in this country. The water is neering talent has gone into improvements on pumped from a well into a condenser where the the air-to-air pump, which seems to be in the refrigerant coil absorbs heat from it to warm ascendancy. According to a 1955 survey of heat- the house. The water from which the heat has pump installations, both residential and commer been extracted may be discharged down the cial, over half were of the air-to-air type and drain or in areas where water is scarce it may most of the remainder used water as the source be returned to an adjacent well so that the water of heat. In residential installations, the prefer table is not affected. In the latter instance, the ence of air over water as the heat source is more 5 b u sin e ss re v ie w pronounced Some than in commercial installations. commercial and industrial As improvements and refinements were made enterprises throughout the thirties, a limited number of heat- utilize the waste heat of processing water to pump installations were made in various places supply their heat pumps. throughout the country from Connecticut to Cali No matter what the source of heat, all heat fornia. During this period of trial and error pumps are based on a simple law of thermo there was a predominance of commercial instal dynamics— heat flows from a substance at a lations. Progress was temporarily retarded dur higher temperature to a substance at a lower temperature, just as water flows from a higher turers were busy on war work. After the war, ing World War II, when heat-pump manufac to a lower level. Also like water, heat must be big money went into the improvement of heat pumped from a lower to a higher level. By in pumps for residential use. They now come in ference, the temperature of Hades is uniform package units with a choice of horsepower for throughout for if it were not, some enterprising different size houses. The leading manufactur engineer would install a heat pump and make a ers, including several blue-chip companies, are corner of the kingdom comfortable. busy enlarging production facilities and build History of the heat pump The heat pump is very young so its history is short. Like many other inventions, the heat pump had its origin in Europe where it appeared shortly after World War I. There the early in stallations were industrial applications, especially in certain chemical industries, in paper mills, and in sugar refineries where compressors were used to generate heat for drying purposes. The use of mechanical devices to heat or cool buildings had to await the arrival of low-cost electricity. Initial efforts were directed at sum mer air conditioning, and unit air conditioners cooling one room only made their appearance in the 1920’s. In the early thirties, engineers in cooperation with electric utilities, began experi ing up dealer organizations to bring the heat pump to the attention of the public. Precisely how many heat pumps are being produced or how many are now in use, no one really knows. One reason is the comparative youth of the product which still has no estab lished channels to collect reliable statistics, and another reason is the rapidly growing acceptance of the product. Prior to 1954 it was a simple matter to keep track of the relatively few instal lations; most of the companies knew where they were and followed them closely. However, with the tremendous expansion of sales during the past two years it was no longer possible to do this. Such records as there are show that almost two-thirds of them are in private homes and the menting with heat pumps for heating and cooling others in commercial establishments. Of the six both homes and offices. In this country the first or eight companies already in the business, the two heat-pump installations for year-round com leading manufacturer is currently reported to be fort air conditioning were installed in late 1934 turning out heat pumps at the rate of 4,000 units and early 1935 in the Salem, New Jersey, office a year. Although some of the estimates of output of the Atlantic City Electric Company and the and installations are pardonably optimistic, it Riverside, California office of the Nevada Cali cannot be denied that the market for the heat fornia Power Company. pump is getting “ hot.” 6 busii le w G eography of the heat pump stricted to the area below the Mason-Dixon Line. Most of the heat pumps are in the South. This is With a great deal more heating capacity built plainly shown on the accompanying map, based into the latest models, heat pumps are steadily on 2,076 installations for which exact locations expanding their market northward. South Jersey are known. Florida had the greatest number of may be cited as an example of how the heat known installations, followed by California, Ten pump moves into and captivates an area. The nessee, and Texas, in that order. At the time of electric utility serving that region reported one the survey there were only nine states without heat pump on its lines in 1953, eight more in any heat-pump installations. 1954, and 78 more last year. Generally speaking, the heat pump is more attractive and economical in the milder climates Economics of the heat pump of the South, Southwest, and Pacific Coast. Like all good things, heat pumps cost money. Florida, for example, has been an excellent Both the original cost and the upkeep depend market for the heat pump where it serves as a upon a number of things— the size of the house, cooling agent throughout the long hot summers the type of construction and insulation, the loca and it dispels the chill during the comparatively tion, the prevailing climate, and the cost of few cold days in winter. Indeed, many homes in that area have no heating facilities of any kind. electricity. It also depends upon the size and type of heat pump installed. Although the heat pump originally found its First, let us consider the cost of installation. best market in the South, it is no longer re- The installed cost of a heat pump ranges from HEAT PUMP INSTALLATIONS $2,700 to $3,100 for a house in the $15,000 to $20,000 price class. That includes not only the heat pump itself but also the necessary wiring and duct work for an air-to-air type of installation. In Florida, where watercooled heat pumps pre dominate, an installation for a small home costs only $1,700 including the NOTE— Map includes 2,076 installations for which exact locations have been re ceived by Joint AEIC-EEI Heat Pump Committee as of May 1955. well. They cost less down there because smaller units with less heating capacity are adequate for the short, mild winter and also because of the ready supply of water as a source of heat. 7 b u sin e ss r e v ie w The cost of a heat pump is obviously much tricity for all purposes. Of that the heat pump greater than that of a conventional gas, coal, or consumed $261.49 of electricity-—$197.73 for oil heating system; but such a comparison is heating from October through June and $63.76 invalid. Since the heat pump furnishes both for cooling from July through September. The heating in winter and cooling in summer, its 80-gallon water heater consumed $116.18 of elec cost should be compared with the cost of both tricity, and the remaining $107.66 went for other a heating and central air-conditioning system. purposes such as the range, electric clothes On that basis, the cost of a heat pump is esti dryer, lighting, etc. From the description it is mated to run only 15 to 20 per cent higher. apparent that the owner has an all-electric home Users of the heat pump are willing to pay the in which the cost of operating the heat pump was added cost for the added comfort and con venience. just slightly over 50 per cent of the total elec tric bill. The heat pump supplies a more steady, even In the 1954-1955 season, when the winter was flow of heat instead of periodic blasts. In addi considerably colder and the summer was some tion to heating when it is cold and cooling when what kinder, the cost of operating the heat pump it is hot, the heat pump cleans and filters the air, was only $203.79— of which $187.88 was for automatically removes excess moisture from the heating duty and $15.91 for cooling duty. Nat air, and can ventilate the year round. Inciden urally, the cost of electricity is an important ele tally, in a seashore home with a heat pump the ment in the cost of operating a heat pump. In salt shakers always work no matter how humid the case just cited, where the owner’s total elec the weather, and fishing boots never collect mil tric bill for the 1954-1955 season was $458.29, dew. Another feature especially appreciated by he consumed 24,748 kilowatt hours of electricity. the housewife is the fact that there is no dust or That is 1.85 cents per kilowatt hour. At an aver smudge inevitably associated with a fuel-burning age rate of 2 cents a kilowatt hour, his bill would system. The heat pump feeds on electricity and have been $494.96 and at an average of 2 x/2 cents there is nothing so clean as a kilowatt. it would have been $618.70. So the rate struc The cost of operating a heat pump is deter ture of the company that supplies your electricity Generally, the is one of the first things to consider before in farther north or the longer the winter the greater stalling a heat pump. It has been said that the the cost of operation. Instead of speaking of an heat pump operates at a competitive disadvan mined largely by the climate. average cost, which nobody pays or a range of tage when electricity costs more than 2 cents a cost which only two people pay, let us take a kilowatt hour, but that depends on the cost of specific case from nearby South Jersey. competitive fuels. What interests the customer The owner has a two-story residence exposed on all four sides. The house, in the $22,000 price class, has about 1,600 square feet of floor most is the total cost of air conditioning his house, and this is bound to decrease as heat pumps are improved in efficiency. space and is approximately 13,000 cubic feet in content. It is equipped with a five horsepower Future of the heat pump air-to-air type of heat pump. During the 1953- “ Cool as a mountain breeze in summer and warm 1954 season the owner spent $485.33 for elec as a South Sea island in winter,” says the an 8 b u sin e ss re v ie w nouncement of one of the heat-pump manufac praising the outlook for the heat pump is the turers and the copy is illustrated with a scene attitude of the utilities. Reference here has al that looks like lovely Lake Louise in the Cana dian Rockies and another that portrays breakers ready been made to the fact that the sale of heat pumps is predicated on low-cost electricity. gently lapping a palm-studded beachfront em Moreover, they use a tremendous amount of it. bellished with tropical cheesecake. The overleaf When a heat pump is installed the household is full of figures about B.T.U.’s, belts, horse consumption of electricity jumps from an aver power, and a blueprint— all of which would de age of about 2,500 kilowatt hours a year to ap light the heart of an engineer. proximately 20,000. Should growth of the heat Advertising has its place, and so does engi pump turn out to be anything like that expected neering, but what is the future of the heat pump? by their manufacturers, it would give a tremen The heat pump is a delight and a joy to the 4,000 dous boost to the sale of electricity. or 5,000 owners who have them. Manufacturers One of the most amazing things about our know they have a good product, and on the post-war economy is the huge amount of money basis of rapidly increasing sales they are en already spent by the electric utilities to expand thusiastic about the future. already been approved by the Veterans Adminis their capacity for the generation and distribution of electric power. Equally amazing is the large tration and the Federal Housing Administration. amount of money they have earmarked for future In the present state of the art, the biggest ob expansion. Entering into these expansion plans stacle is the first cost. The industry today stands about where the automobile did in 1915. Basic are devices like the heat pump which feeds solely on kilowatts and feeds heavily. Heat pumps have principles have been mastered, but the cost still restricts sales to the luxury market. Many utilities welcome the addition of heat Yet to come is the mass production needed to pumps on their lines, not only as an increased outlet for the sale of kilowatt hours but also to cut the cost and widen the market. Heat-pump help balance their load. As a result of the phe manufacturers cite the example of the household nomenal growth of room air conditioners during refrigerator which in 1920 had an average price the past few years, the summertime load of the utility goes very high so that something is of $600 and decreased over 70 per cent to an average price of $172 in 14 years as public ac needed to bring up the winter load. The heat ceptance of the product increased and the mass pump is an ideal instrument for that purpose. market was developed. In anticipation of a de Owing to crease in the cost of production of 50 per cent or energy, the peak power requirements must be the difficulty of storing electrical more, simplification of components, increase in available at all times and it is costly to allow efficiency, smaller physical dimensions, and more equipment to stand idle awaiting peak summer attractive exteriors, manufacturers expect the requirements. Anything that helps to smooth out sale of heat pumps to rise to 75,000 units a year the peaks and valleys in the production of power by 1960 and 250,000 by 1964. Market acceptance increases the efficiency of utility operation. of the heat pump is expected to outstrip any elec tric consuming device except television. Another factor to be reckoned with in ap Electric utilities live on the sale of power but some of them also sell gas. Naturally, those that sell electricity only are likely to be most en 9 b u sin e ss r e v ie w thusiastic about taking heat pumps on their business proposition. In such cases the heat lines and some of them offer special heat pump pump easily pays its cost and keep in greater rates. Ordinarily, it is the manufacturer that de efficiency of output or expanded volume of sales. signs and builds a new household appliance By all appearances the heat pump is here to who gets the utility interested to put the new stay and it could easily revolutionize residential device on their lines, but in the case of the heat and commercial space heating. Its progress is pump it has been the reverse. Here, the utilities being scrutinized very carefully by those whose are pushing the manufacturers of heat pumps. In appraising the market for heat pumps, em fortunes may be affected. Manufacturers of airconditioning equipment are interested because phasis has been placed upon residential installa the heat pump is right up their alley and offers tions. The producers, however, are not over looking the commercial market. Unlike a resi double-barreled service. Electric utilities are in terested because the heat pump has potentialities dential heat pump which sells on the basis of for greatly expanded output of electric power comfort and convenience, the installation of a and better balanced loads. Gas and oil com commercial heat pump in an office building, factory, store, or theater is looked upon as a panies are concerned because the heat pump may do to them what they did to coal. THIRD DISTRICT BANKING - 1955 The annals of business for 1955 are sprinkled heavier with references to new high points achieved. In finance companies, utilities, mortgage dealers and part this is matched by the records of banking others. Real estate loans moved up considerably borrowings by manufacturers, sales becoming available with the filing of year-end in 1955 and the volume of instalment credit reports. granted to consumers expanded rapidly. Heavy borrowing from the banks was to be The growth in total bank credit was much less expected and was very much a part of the bank than the increase in loans. ing picture in 1955. Preliminary tabulations drawn down considerably to help meet the per covering member banks in the Third Federal sistent demand for loans. Sales and redemptions Reserve District show the greatest increase in reduced holdings of United States Treasury is loans ever reported in a twelve-month period, a sues by $327 million to $2,496 million. And Investments were rise of nearly $600 million or 18 per cent to a investments in other securities, chiefly the obli record $3,818 million. Demands came from many gations of states and local governments, were sectors of the economy. Reports in detail from a reduced materially, falling $130 million to $802 group of large banks indicate that a sharp rise million. in advances to commerce and industry reflected 10 In percentage, the increase in loans and the b u sin e ss r e v ie w MEMBER BANKS— THIRD DISTRICT To help maintain reserve positions, borrowing B ILLIO N S serve Bank was definitely more active than in 1954. Semi-monthly averages show that such by Third District banks from the Federal Re $ borrowings were consistently larger than excess reserves in the last half of the year. In the clos ing month of 1955 the Reserve Bank’s discounts and advances to member banks averaged over $60 million daily as against $18 million a year earlier. With loans in record volume,, the gross earn ings of Third District member banks reached a new high point. Preliminary tabulations, ad justed for bank mergers, show total income of $293 million, 8 per cent more than in 1954. More than half of this increase was absorbed by rising expenses— salary and wage payments, in terest on deposits, and other items of outgo— but a sufficient amount remained to add ma terially to current earnings after expenses. Consistent with developments during the year, profits on securities were much smaller than in 1954 and valuation reserves on loans were built up substantially by transfers out of earnings. decrease in holdings of Federal Government These and other changes more than offset higher securities at member banks in the Third District net current earnings and a decline in income tax were in line with member banks throughout the payments. Accordingly, the preliminary figures country, judging by figures for the year ended show a decline of nearly $8 million to $53 million December 28, 1955. But the decline locally in in net profits available for distribution. other securities contrasted with a small increase dividends increased and absorbed three-fifths of in the national figures. net profits. Cash 11 FO R TH E R E C O R D . . . BILLIONS * M EMBER B A N K S 3RD ER.D. i! POSITS B A N K IN G L J i _______________________ / h e ? / VT K J V f /| ” / 4 W 1 1 ^ c iE C K PAYMENTS 0 CITIES^ a th V E S T M E N T S 3 L ~+ )ANS 2 2 YEARS AGO YEAR AGO Factory* SUM M ARY Third Federal Reserve District Un ted States Per cent change Per cent change December 1 9 55 from mo. ag o year ag o 12 mos. 1955 from ye ar ag o December 1 955 from year ag o mo. ago 12 mos. 1955 from year ag o LO CAL CHANGES 0 4 6 + + + EM PLO YM EN T A N D IN C O M E Factory employment (T o ta l). . Factory w a g e incom e.............. + 0 1 + 3 +12 0 3 + + TRADE** Department store s a le s ............ + B A N K IN G ( A ll member banks) Deposits....................................... Lo an s............................................ Investments.................................. U .S. G ovt, securities.............. O t h e r ......................................... C h e ck payments........................ 7 9 7 7 8 + 3 +12 +12 + 0 7 + 7 + + + + 2 2 1 1 0 +12t + 1 +18 -1 2 -1 2 -1 4 Of ot - ’ Based on 3-month moving averages. ’ ’ Adjusted for seasonal variation. 12 - + 1 1 +16 +21 +21 +19 - 1 + 6 + 4 + + 5 8 + 7 + 0 3 1t ot 0 0 f2 0 C itie s ^Philadelphia + 3 +17 -1 0 -1 2 0 + 8 + 2 0 + 4 +13 - 1 - 3 + 8 + 8 0 0 Sales Stocks year mo. year mo. ye ar mo. year mo. ag o ag o ago ag o a g o ago ago ag o A lle n to w n . . 0 FHarrisburg . . . 0 +14 Lancaster. . . P h ila d e lp h ia . + 3 + 2 +13 + 2 - 4 0 - 5 + 1 - 1 - 1 + 7t + 1 6 Payrolls Per cent Per cent Per cent Per cent Per cent change change change change change December December December December December 1 955 from 1955 from 1955 from 1 955 from 1 955 from R e a d in g . . . . Scranto n. . . . PRICES Consum er.................................... 3 0 5 + 1 1 + Department Store Payments Employ ment mo. ago OUTPUT M anufacturing production. . . Construction contracts*........... C o a l m ining................................ + DEC. 1955 -1 + + 0 +1 0 9 7 + 1 0 0 +1 + 6 +31 + 5 + 6 +37 + 7 + 5 +18 +40 + -1 -1 8 -2 4 + +10 +10 - 1 +16 +48 + 9 -2 1 + 6 + 9 3 +14 - 1 -1 +10 +58 + 5 -2 3 + -2 +15 +52 - 4 -1 9 + 8 W ilk e s-B a rre -1 + 4 W ilm ington. . +1 +13 Y o r k .............. +2 + 0 -1 4 +4 4 +11 7 -2 1 2 -1 5 + 6 +23 + + + Trenton. year ago + 5 +55 + +21 +37 + 5 + -8 +16 +15 5 -2 2 + 5 + 6 -2 5 8 +46 -1 3 +14 +5 0 +13 -2 4 + +13 + 7 - 3 7 +11 ’ N o t restricted to corporate limits of cities but covers areas of one or more counties.
@FedFRASER