The Irregular Economic Review

Usage

 Survey data shows that active cases of COVID-19 create surge demand of 17X the typical burn rate for N95 respirators, 8.6X for face shields, 6X for swabs, 5X for isolation gowns and 3.3X for surgical masks.

According to the survey, hospitals ranked the supply of N95 respirators as their top concern. Comparing the number of respirators the hospital used before and after confirmed COVID-19 cases were admitted, Premier calculated a surge need of up to 17X. The survey also found that the average respondent had 23 days of N95 inventory on hand. However, those with active COVID-19 patients had an average of just three days’ worth.

“To date, most attention about supply shortages has focused on N95 masks, which was one of the first PPE items to fall into short supply as consumption surged to provide care to COVID-19 patients,” Alkire says. “Although this supply remains a top concern, backorders for surgical masks, isolation gowns, thermometers and disinfecting wipes are surging and quickly surpassing demand for N95s. This is an early warning signal of product shortages that may be on the horizon and need to be planned around.”

According to the survey, hospitals ranked the supply of N95 respirators as their top concern. While the largest number of respondents (about 39 percent) reported having more than 1,000 N95s on hand, a plurality of respondents (23 percent) are burning through more than 100 masks a day, meaning that many systems have less than 10 days’ inventory.

Despite these concerns and the fact that nearly all respondents have implemented at least some conservation protocols for PPE, there is still significant room to further improve conservation measures specific to N95 masks, including extending the wear of N95s (a measure followed by 60 percent of respondents), re-using N95s (40 percent), using expired N95s (33 percent) and using industrial N95s (20 percent).

Shortages for hand sanitizer were the second most concerning shortage for survey respondents, with 64 percent reporting an active shortage. An additional 25 percent have less than two weeks’ supply. However, clinicians do have alternatives, as proper hand hygiene with soap and water can be more effective than alcohol-based hand sanitizers.

Surgical mask shortages were the third most concerning shortage for survey respondents. While most respondents (56 percent) reported having more than 1,000 surgical masks on hand, a quarter (26 percent) burn through that amount every day, meaning that the mask supply is generally a day’s supply or less.

Half of survey respondents (50 percent) reported having more than 1,000 isolation gowns on hand, however, about 25 percent also burn through that same quantity each day. In addition, about 17 percent of respondents had fewer than 250 gowns available.

Viral swabs are another area of concern, as most respondents (60 percent) have fewer than 250 swabs on hand, while about 21 percent burn through more than 100 swabs a day. The swab shortage was largely due to the fact that one of the top manufacturers is based in Italy, which has been hit particularly hard by the virus. However, the U.S. Air Force has committed to making shipments of the swabs, so the problem may resolve in coming weeks.

According to the survey results, 20 percent of respondents report needing additional ventilators immediately. Approximately 27 percent can take on an additional one to five patients before they require additional ventilators. About 24 percent can accommodate six to 10 more patients, and about 30 percent can take 11 or more patients before they need additional ventilators.

Production

3M and half a dozen smaller competitors are making 50 million N95 masks in the US a month.

3M has doubled production since January.

3M began ramping up mask production after the World Health Organization on Jan. 11 reported the first deaths from Covid-19, the disease caused by the coronavirus. By mid-March 3M had doubled its output to nearly 100 million masks a month globally, and 35 million a month in the U.S., at plants in South Dakota and Nebraska. the company also has said it would import 10 million masks this month from its factory in China, which earlier this year was restricted from sending goods abroad.

Smaller manufacturers Moldex-Metric Inc. and Prestige Ameritech Ltd. make about 10 million N95 masks each month combined, according to the companies. Their output plus 3M’s mask production represents the bulk of current U.S. capacity, according to industry leaders, augmented by smaller quantities from companies including Alpha Pro Tech Ltd. and Louis M. Gerson Co.

The agency in March ordered 600 million N95 masks from five companies to distribute to hospitals and augment the national medical-supply stockpile over the next 18 months. The purchase includes orders for 190 million masks each from 3M and Honeywell and 130 million from medical-supplies company Owens & Minor Inc., the agency said in an email.

Honeywell, which primarily made masks outside the U.S. before the pandemic, said it plans to hire 1,000 workers to make 20 million N95 masks a month by May at plants in Rhode Island and Phoenix. 3M said it will be making 50 million masks a month in the U.S. by June.

Moldex-Metric said it is making eight million N95 masks a month, and Prestige Ameritech said it is making two million masks a month. Dozens of smaller manufacturers are also buying equipment to start making masks.

But many of their new machines won’t be installed for months, manufacturers said. Some mask components, including a filtering material called polypropylene, are also in tight supply.

Total Petrochemicals USA, a division of France’s Total SA, is a major supplier of polypropylene to manufacturers including 3M, according to a person familiar with 3M’s supply chain. Total said it has boosted global production of polypropylene to meet rising demand.

Strong Manufacturers, a medical-equipment distributor, recently installed three mask-making machines at a factory in North Carolina, but can’t find enough raw materials to use them. The machines need a hard-to-find shape of elastic band, said Charles Fatora, the company’s head of global procurement.

Medicom Group, a Montreal-based mask maker, said it is opening a factory in Canada to make N95 and surgical masks after signing a supply agreement with the Canadian government. The company wants a similar commitment from officials in the U.S., where Medicom operates a surgical-mask plant, to buy its masks even after the pandemic ends.

“If we do not have a long-term agreement, how can we invest more and more dollars into equipment that is going to sit and rot,” said Medicom Chief Executive Ronald Reuben.

Bloomberg

In the U.S., the 3M facility at Aberdeen, a city of 28,000, was built in 1974. The 450,000-square-foot factory and a sister plant in Omaha together produce 400 million respirators of myriad types annually. Within the next year, they will be producing many more.

Imports

Imports of N95 masks from China, the world’s top producer of medical gear, have resumed after a weekslong export stoppage as officials diverted production to fight the outbreak in the country where it began.

Lloyd Soong, chief executive of Singapore-based Pasture Pharma Pte, which makes one million N95 masks a day in China and other Asian countries, said raw material shortages have made it hard to boost output. A chunk of his output is still being requisitioned by government entities in China, leaving him with limited supply for eager customers in the U.S.

China makes half of the world’s N95 masks.

The most recent delivery of medical-grade N95 masks arrived from China about a month ago, on Feb. 19. And as few as 13 shipments of non-medical N95 masks have arrived in the past month — half as many as arrived the same month last year. N95 masks are used in industrial settings, as well as hospitals, and filter out 95% of all airborne particles, including ones too tiny to be blocked by regular masks.

Black Market/Exports

Tamer Abdouni is a Beirut-based consultant who facilitates the trade of, among other things, 3M respirators. Usually he can buy them for $1.25 apiece and resell them for a dime more. Lately the best purchase price he can get is $7.25. Even if he were willing to buy at that price, he says, selling respirators at multiples of his usual price during a pandemic would tarnish his reputation.

“3M makes the Rolls-Royce of masks,” Abdouni says. “People are holding stocks of masks and waiting for them to increase in value before selling them off. This is becoming very unethical. This is a war on coronavirus, and I don’t want to be a warlord.”

3M says it hasn’t raised respirator prices and can’t control what happens after it sells its products to distributors. Roman wrote to U.S. Attorney General William Barr on March 24 to offer 3M’s help in rooting out medical device counterfeiting and price gouging.

With demand soaring, 3M’s respirator sales could nearly double this year, to $600 million, according to William Blair & Co. analyst Nicholas Heymann. The company, despite its $32 billion in annual revenue, could use the boost.

Fortune: Most action seems to be done with shady sellers. Many masks being exported, apparently 280 million in one day.

Brooklyn — man arrested with warehouse full of medical supplies.

Supply Chain

First, the supply chain that served hospitals well in the past has broken down. For years, many hospitals bought supplies from the same suppliers. And for years, those suppliers relied on the same manufacturers. Trusted relationships were formed. Now the system isn’t working; suppliers and manufacturers are out of stock and flooded with requests. So hospitals have to find new sources of PPE, right when thousands of other hospitals are frantically doing the same thing. And once they do, they need to negotiate new agreements and payment terms — often with completely unknown suppliers sourcing PPE from known and unknown factories. As one person searching for hospital supplies put it, “It’s like the Wild West out there.”

Second, N95 masks, which offer extra protection, are particularly hard to procure right now because they’re almost entirely made in China, and trusted large-scale Chinese manufacturers like 3M are supplying China and other Asian countries battling their own pandemics. Often, the masks that U.S. hospitals are able to buy from them are “leakage” — extra supplies sold through side businesses that have launched to meet the rising demand. That’s not sufficient for the enormous need we have in the U.S.

Third, there’s a technical issue holding things up. The Chinese equivalent of N95 masks are called KN95s. They’re authorized by the CDC, but they aren’t yet authorized by the FDA for emergency use. That may change; those authorizations are updated regularly. But for now, U.S. hospitals following FDA rules — nearly all of them — aren’t buying KN95s, which means the pool of suitable masks is even smaller.

The number of Covid-19 cases, hospitalizations, and deaths is growing, and the best estimates from epidemiologists and health policy experts say the overall peak for the country is two weeks away. With D-day fast approaching away, there will not be time to meaningfully increase the crucial medical supplies available to the health system: ventilators, masks and other PPE, virus testing materials. We must go to war with the army we have.

Although we are desperately short on resources, there are two aspects of the overall strategic situation which in principle greatly increase our chance of having the medical resources available to care for the coming crush of Covid-19 patients. First, not every state or locality will hit the peak at the same time. For example, California’s epidemic peak is expected to be April 28, while New York’s peak is April 9th. Second, not every area is expected to be equally affected. There are some areas which will be more affected, and areas which will be less affected.

Both these factors mean that it will be possible to concentrate resources first to the areas that need them the most. This includes (i) doctors and other health care workers (ii) ventilators and associated equipment (iii) masks and other PPE.

There is no shortage of aircraft to transport to transport the resources (passengers are not flying, so air craft are idle). In fact in order to secure their share of the stimulus, many airlines are flying empty planes around the country. There is no shortage of accommodation for the health care workers, hotel rooms across the country largely empty.

A trickier question is whether there are currently enough doctors available. But given the fact there are mass layoffs of doctors and healthcare workers around the country, it seems to be the case there is a large current reserve of current doctors that could be enlisted to help see patients. Different specialists can chip in. Recently retired doctors are another potential pool, however since the elderly are most affected it may be too risky to put them in the line of action. We could potentially import more foreign doctors, but this is potentially months down the line.

Doctors must be able to easily move between different hot zones: between different hospitals in a county, areas of a state, and even between different states. Ventilators and associated equipment must be able to move between different states.

It turns out there are actually existing organizations and systems to shift health care resources, but they are unknown, unorganized, ineffective, and poorly resourced. It is criminal that a national medical resources board has not been set up to organize the distribution of materials during the crisis, and a national medical labor board has not been set up to organize the medical workforce.

The US did have a strategic reserve of equipment, but unfortunately it was disbursed on the basis of political favor, and is now empty. There is a strategic reserve of 10,000 ventilators which is being held back, and which will undoubtedly be given to the right wing state which sucks up the most to the administration.

State governments are slowly trying to put into place systems to transfer health care resources, but from what I’ve read it doesn’t seem particularly organized. Andrew Cuomo has created a statewide command center, and apparently has convinced public and private hospitals to share resources.

Doctor reallocation

There is a federal system for signing up volunteers that is already in place which was set up after 9/11. But its website, which is designed to link volunteers to state-level registries, is little-promoted and recently had a major glitch. The separate website for the national medical reserve system has no mention of Covid-19 or our current crisis, and has not be updated for a year. There has been widespread advertising campaign for the reserve system and no general call to service for medical volunteers.

But even more crucially, there does not seem to be any plan in place to get volunteers to the places that need them the most.

Individual states are pursuing the following policies:

1. New York has started a Medical Reserve Corps, with Governor Cuomo calling on volunteers from across the country to chip in. They have 11,000 volunteers so far, and so far 358 have signed up for shifts at health care facilities.
2. Virginia’s Medical Reserve Corps has 11,000 members.
3. Maryland’s corps has been activated, with its 5,000 volunteers.
4. DC has approximately 1,600 members of its reserve corps.
5. California is starting a Medical Corps.

Other Countries

Italy has recently formed a task force of 8000 doctors.

It is sometimes said that economics is the study of the scarce allocation of resources. Here’s an allocation problem for you!

We are currently in the early stages of a pandemic the likes of which this country has not seen for a hundred years. Certain areas of the country such as New York City are seeing an incredible surge of Covid-19 patients as hospitals and ICU rapidly fill up.

Other areas of the country have less Covid-19 patients and hospitals are emptying. In addition, due to the cancellation of elective surgery and patients delaying outpatient visits, other areas of the health care system have fewer patients.

The result: across the country, hospitals are laying off employees en masse. This is coming from UI statistics as well as anecdotal reports. Other than workers in accommodation and food service, the sector with the most layoffs is health care. It accounts for 10% of the UI claims in Oregon, and 13% of the UI claims in Michigan. This was actually noted in the national UI report.

To see a smattering of stories:

1. Kentucky hospital chain lays off 500 employees as coronavirus saps business
2. Furloughs, retirement cuts, and less pay hit Mass doctors
3. Pennsylvania hospital furloughs employees
4. Cleveland Hospital furloughs 70 staffers
5. Maine hospital furloughs portion of staff
6. Pennsylvania medical center furloughs hundreds of workers

There are many more. Just google news search for “hospital furlough”.

Well, it doesn’t take a Ph.D. in economics to have the obvious idea that we can redistribute resources from areas that are hit less hard by COVID to areas that are hit harder. This can help increase patient capacity when the virus as at its apex.

Andrew Cuomo has asked local health departments to share resources, but has not organized anything formally. But resources can be shared across the health departments as well within state boundaries, and across states as well.

As far as I know there is no preparation for the widespread of medical distribution of medical resources, both within and across states. If you know of anything like that, leave a comment or send an email.

With the record 3.2 million new claims for the week ending March 21st in the books, and millions more on the horizon, there are a number of unanswered questions about the increase of unemployment:

1. How long is the surge likely to continue?
2. Are the new unemployment claimees permanently separated from their jobs, or are they furloughed and likely to be hired back?
3. What types of workers are being laid off? What industries are the most affected?

For the first question, see the great forecast work being done by Paul Goldsmith-Pinkham and Aaron Sojourner.

On the questions of what industries are the most affected, data is starting to trickle in. The Oregon Employment Department has released some great data on the industry breakdown on who filed for unemployment last week. The raw data is here. Michigan has also released some data, which was summarized by the Upjohn Institute. If you know of any more state data released leave a comment or shoot me an email.

(1) The most affected industry by far is Accommodation and Food Services, which accounts for 47% of the total new claims in Oregon and 32% of the claims in Michigan. Restaurants are completely shut down, and these workers are being laid off right and left.

(2) Surprisingly, the second most affected sector is health care and social assistance ! This was actually noted in the national UI report. It accounts for 10% of the claims in Oregon, and 13% of the claims in Michigan.

On the surface this is puzzling, for it seems like that the health care sector should be bulking up to fight the coronavirus rather than shrinking. At this point I can only speculate, but there have been a number of news reports about hospitals laying off workers because elective surgeries are being canceled.

(3) Not surprisingly, retail workers are being hit hard. 6.4% of the claims in Oregon, and 6.5% in Michigan.

(4) Layoffs are widespread. To see this, for each industry I take the average of weekly claims from Jan 1st to March 7th, i.e. before the virus started affecting employment. In Oregon, manufacturing claims are up 100% over a normal week, Trade and Transportation 209%, Information Tech 355%, Finance 135%, Professional and Business Services 128%, Education 964%, Other Services 455%.

As Covid-19 cases continue to sweep up its exponential growth curve, the health care system is in the race of its life to prepare for the coming crush of patients. Whether we can win this race depends upon how fast new cases grow, the current resources of our health care system, and how fast we can produce and buy the health care materials we need.

Covid-19 attacks the respiratory system, inflaming the lungs and making breathing difficult. Once the virus starts to affect the lungs, one of the only treatments available is mechanical ventilation, which uses a breathing tube to increase the flow of oxygen and to make the process of drawing a breath easier. Ventilators are used to treat a number of diseases other than Covid-19, and most hospitals have several of them. However, there are currently only enough ventilators to treat patients with diseases other than Covid-19.

The sudden realization the the country needs ventilators has set off a mad dash as hospitals, state governors, and the federal governors frantically try to purchase the few remaining ventilators that are on the market, driving up prices. As this is a global pandemic there is worldwide competition for the ventilators, as well as rich private individuals who are looking to purchase them.

The result has been complete and utter chaos, with most states unable to complete their purchases, with the federal government orders for the national stockpile taking priority. Unfortunately, the national stockpile is controlled by our current criminal administration, who is doling out the supplies according to political favor rather than medical need.

Whether we will have enough ventilators in time depends on the measures the country takes to increase production, purchases, and efficient distribution of ventilators.

The scale of the problem is immense. Ventilators are enormously complicated devices produced with thousands of separate parts. They must be operated in specialized rooms with centralized oxygen supply, by trained technicians. We may need to produce or buy 100,000 ventilators, which would almost double the current supply. There is a possibility of creative solutions, modifying ventilators to take more patients, or designing a system of mobile ventilators to travel to hot spots, but at this point these are untested ideas, not rigorous plans.

My basic analysis of the supply situation (details below) is that we unlikely to significantly increase our supplies of ventilators in the next 1-3 months, thus efforts must focus on the efficient distribution of resources between affected regions. Total monthly production of ventilators in the US is only about 1,500, and that is already after dramatically scaling up production lines. With individual states requiring several thousand ventilators each, production cannot meet requirements.

An allocation plan would mean a plan to determine exactly which areas receive the few new ventilators that are on the market. It would mean a plan to quickly move ventilators, associated equipment, and the necessary operators to the localities that are being hit the hardest by Covid-19. It would mean procedures in place that can modify existing ventilators to handle more than one patient.

In the slightly longer term it would in theory be possible to scale up production if the country could mobilize its economy towards this goal. However, the federal government does not want to take control of the supply chain. Although our president has made noises over the past month about using the Defense Production Act (DPA), its actions have made clear it has no intention of actually using it. In fact, President Trump’s theory of invoking the DPA is similar to Michael Scott’s (from The Office) theory of declaring bankruptcy:

Under a non-criminal administration, using the DPA would be an idea solution to the problem. The federal government would become the sole purchaser of all ventilators in the country, banning export and private sales. It would promise to purchase the ventilators whether they were ultimately needed or not. It would determine the national requirements and whether new factories are needed or just new production lines. It could force companies to accept contracts to make ventilators, although hopefully it would not need to do this. It would use the same powers to ensure the supply chain of all the components and natural resources are available. It would provide the financial resources and manpower to make the factories run 24 hours a day, 7 days a week.

Under the current administration, however, the problem with using the DPA is that the federal government will be in charge of all of the ventilators. Due to the level of incompetence and corruption, it is likely they will bungle the response.

Private companies are reluctant to increase production on their own because making ventilators means building factories with high fixed costs and large amounts of uncertainty about demand. If the pandemic dies down in 3 months, they will be left with worthless factories and large stocks of unwanted ventilators. As a result, they have been incredibly slow to increase production.

Number of ventilators needed

The key unknown in the ventilator supply situation is the number of ventilators that will be needed to treat Covid-19 patients. Public health estimates vary, from 70,000 to several hundred thousand. A potential complicating factor is that Covid-19 patients are remaining on ventilators a lot longer than is usual, sometimes upwards of two weeks.

One way to get an estimate on the number of ventilators is to first get an estimate of the number of ICU beds needed. If we know roughly the number of ventilators per ICU bed, we can then back out the number of ventilators. A recent Harvard model estimates the number of ICU beds that will be necessary under a variety of different outbreak scenarios. Under a “moderate” scenario, i.e. 40% of the population is infected over 12 months, 150,000 ICU beds will be needed for Covid-19 patients. If half of ICU patients need ventilators, this mean 75,000 ventilators are needed for Covid-19 patetiens alone.

Some studies suggest that between 1% and 2% of COVID-19 patients require ventilation. One study of patients in Wuhan, China, found that 5 percent of individuals with coronavirus ended up in the ICU, while 2.3 percent needed invasive ventilation (Guan 2020). A separate study on Wuhan found the rate of invasive to non-invasive ventilation is roughly 50-50.

Several studies have estimate the number of total patients that will need to be ventilated due to the virus over the course of the pandemic, ranging from 64,000 for a moderate outbreak, to 320,000 in an intermediate outbreak, to 720,000 in a pandemic similar to the 1918 Spanish flu. A recent AHA webinar estimate the total number of patients needed to be ventilated is 960,000. It is unclear how many patients will need to be ventilated at once, which will determine the number of ventilators necessary.

Individual states are desperate for ventilators, and have their own estimates of what they need. New York alone may need more than 18,000 ventilators, California may need 10,000 ventilators, and Illinois may need 4,000 ventilators. Maine is trying to purchase 300 units. Louisiana wants to purchase 12,000.

The ventilators we have

The United States has approximately 62,000 full featured mechanical ventilators and 98,738 older ventilators available in hospitals. Scraping together ventilators from other health care facilities yields 200,000 ventilators. Many of the are older units may not be capable of sustained use or of adequately supporting patients. This includes the approximately 12,700 in the National Strategic Stockpile.

But remember, these are just the ventilators that are need for Covid-19 patients. Most currently extant ventilators are being used for non Covid-19 patients. To estimate the number of new ventilators that must be produced, we must first calculate the current stock which is free to treat Covid-19 patients — “unoccupied ventilators” and are not already in use. In Illinois, there are 1,467 ventilators available, but 75% (1,093) are in use, leaving 374 available. In New York there are about 9,150 ventilators, but the vast majority are being used. Even with the state’s own emergency stockpile, there are only 2,800 (30%) available. To get a rough estimate of the stock of unoccupied ventilators that can treat Covid-19 patients, we assume 25% of the current stock of ventilators are free, which yields a total of 50,000 unoccupied ventilators. This is at the upper end of a recent study that found that US hospitals could absorb from 26,000 to 56,000 in the event of a pandemic.

Distribution of Ventilators

The distribution of ventilators is a disaster. There is no system for determining who is getting the ventilators, or to shift them to hospitals that need them the most. State governments are competing on the open market with foreign and private bids. An illustration of this is the fact that Tesla recently bought 1,000 ventilators, which they then donated. The National Strategic Stockpile has 12,700 ventilators in reserve, which are currently being doled out by Donald Trump based on political goals.

Individual hospitals are holding back from purchasing ventilators because of their high costs, and the fact that these may only have a short-term spike in demand. Hospitals do not have the financial resources to spend hundreds of thousands of dollars on these new machines. Lower-cost home ventilators can’t generate the precise air delivery needed to treat potentially fatal coronavirus symptoms while hospitals are reluctant to stockpile higher-cost devices in numbers beyond what’s ordinarily needed. Top ICU models are mostly imported from foreign manufacturers.

Production of Ventilators

Production of new ventilators in the United States will be a challenge. About half of production of ventilators in in the United States, while half is imported. Some countries — including Germany — have decreed that life-saving equipment be prioritized for their citizens. There are fewer than a dozen domestic manufacturers that are largely backlogged with international orders; the United States has been slower than other countries at implementing policies for speeding up ventilator production.

US manufacturing facilities in the United States are already at 100 percent production capacity, and producers and are looking to ramp up production by another 15 or 20 percent. Additional production will take months. Companies are adding third shifts and repurposing production lines.

Medtronic is based in Ireland for tax purposes, but most of its market is in the United States. Medtronic produces ventilator in Galway, Ireland, where the company makes “PB980” and “PB840” ventilators. By bolstering and transferring staff to Western Ireland, the facility will also operate on a 24-7 basis. Medtronic has already doubled its production of high end ICU units and produces 1,000 per month. Production is difficult because there are 1,500 unique parts supplied from 14 countries. Medtronic said it is aiming to produce 500 per week.

Vyaire is based in Chicago, Il, and has already doubled its production, and now produces about 170 per month.

Ventec produces about 250 mid-range ventilators per month, midway between home ventilators and ICU units. The devices have a reduced need for medical personnel to manage patients.They are trying to ramp up production to 1,000 per month within 90 days.

Total production is thus 1,420 per month.

Although there have been large amounts of headlines touting potential new manufacturers like GM and Tesla, it is unknown if this will actually take place. Companies are wary of investing in building factories that produce ventilators which may not have a demand in the many months it will take to ramp up production. As recently as March 19th, GM put out a statement that “Right now it’s just an internal feasibility study on whether it‘s possible for us to help out in the production of medical equipment”.

Royal Phillips is a major manufacturer of ventilators and is ramping up production, but serves a global market and not just the US; it is unclear how many can be shipped to us.

Resmed is a San Diego based company but serves a global market, and produces ventilators in Singapore, Sydney, and Shanghai. The seem to produce mainly the mask-based noninvasive ventilator.

Production of ventilator parts

A potential bottleneck of ventilator production will be the supply of parts. There are shortages all along the supply chain, including circuit boards, tubes, and other parts.

“The limiting step here is not final manufacturing,” one manufacturer said. “We are good at that. We can scale that. The limiting step is component supply.”

Finding parts such as O-rings, lithium-ion batteries and certain processor chips have been a problem.

US hospitals have a critical shortage of N95 respirator masks, and the situation is so desperate that many physicians are resorting to reusing them. Although this is horrifically unsafe, since it has come to this the CDC has actually issued detailed guidance for the specific situations that masks may be reused. The shortage is even more worrying given that the real crush of patients from coronavirus has not even started yet. Doctors are frantically asking for donations of protective equipment, and have formed organizations to solicit these donations.

There are several reasons for the shortage. Part of it is due to widespread buying of masks by anxious citizens. Part is due to the fact that most masks are manufactured in China and other foreign countries, who have now banned masks from being exported due to their own critical medical needs.

The current distribution of the masks is haphazard. All over the country N95 masks continue to be sold at retail. In addition, corporations have large stocks of the masks, some of whom are donating them. On March 17th, Mike Pence asked for construction companies to donate protective masks to hospitals, and for manufacturers to forgo additional orders. Since demand is currently far outstripping supply, manufacturers and middlemen are making the decisions of who exactly is receiving the supply.

The Department of Health and Human Services has stated that it needs about 3.5 billion N95 respirator masks per year, or 291 million per month. The US Strategic National Stockpile currently holds 12 million N95 masks and 30 million surgical face masks.

Beside the critical medical need, it is likely that many workers will need to receive masks before they can return to their jobs. If every one of the 162 million workers in the United States were to receive a mask for every working day, this would require production of 3.5 billion masks per month.

The major manufacturer of N95 masks in the United States is 3M, who is currently producing 35 million respirators a month. The company expects to double its capacity within the next 12 months to 70 million respirators a month. The only other manufacturer I know of is Prestige Ameritech, which has increased its production from 250,000 masks a day to 1 million daily. If you know more about US mask production please comment or send an email.

There is currently no central government agency that is overseeing the medical supply problem in the United States. A centralized agency is necessary because the current system of state-by-state action is failing, for several reasons: (i) states lack the resources of the federal government, as they are constrained by their budgets (ii) states compete against each other for access to resources (iii) there is no shift of resources between states, i.e. to the states hit the hardest (iv) without a centralized response there is duplication of effort in research and strategy (v) for communication purposes it is much easier to have a single agency in charge.

To deal with this challenge, the United States Government must establish a centralized medical production board to direct conversions of industries to medical need and establish priorities in the distribution of materials and services.

The board will coordinate purchases, determining the economical and effective method of procuring items. It will have contract clearance across the federal and state governments, to ensure that agencies aren’t bidding against each other. It will guarantee payment of all output, even if the products are not ultimately needed. Orders will take priority over all private accounts or for export. It will aid in conversion to and construction of hospitals and factories, as well as adding capacity, through loans, grants, and direct ownership.

In the meanwhile, state governors should take emergency action to ensure masks end up in the hands of doctors that need them the most. They can: (1) require that middlemen and manufacturers fulfill only government and hospital orders (2) use emergency powers to commandeer masks from non-essential businesses and non-vulnerable citizens (3) distribute masks and other protective equipment to the areas with the greatest need.

Latest unemployment numbers: For the 29 states I have data, there is a total of 1,822,979 new unemployment claims over the past week. However, of the 29 states, some states only report claims for a few days. If I assume the average claims of the non-reported days are the same, this comes out to 2,800,000 claims for the week for the 29 states. This is about 2.5% of the total civilian labor force in these states. Applying this number to the non-reporting states, this gives a total of 4,146,920 new unemployment claims for the week.

The unemployment numbers are out for last week (i.e., the week ending March 14), and they are up to 281,000, up 33% from the previous week. The Washington Post has the writeup.

Note that the numbers I’ve been tracking are for this this week (i.e., the week ending March 21), and will be released next Thursday morning. The biggest number to come out recently is the one for California, 200,000 in 3 days. The chart below compares the number just for the past 3 days with the average weekly claims during the Great Recession.

Markets are calmer today, with coronavirus health news bad but central banks introducing several new policies. The ECB has a new $1 trillion bond buying program, and the Fed is now extending swap lines to many countries.