America is not quite ready for mass testing

The one thing that everyone agrees on, from doctors, to public health officials, to clueless newspaper op-ed writers, to clueless economic bloggers, is that mass testing for Covid-19 should be a national priority. The case is obvious: to control the spread of the virus, we need to know who has the virus and isolate them. And to return to work, you need to know your colleague is not going to infect you, so everyone at works needs to be tested. Everybody gets tested weekly, and voila, the country gets back on track.

Given its national importance, you would assume that somewhere in the bowels of the United States government there is a small group of smart, highly trained, and dedicated team of professionals working behind the scenes to make this happen. And you would be wrong.

The Onion remains a key source of solace during these trying times.

Instead, the response is being lead by the group of criminals, incompetents, bootlickers, and general misanthropes who are intent on using the crisis for financial and political advantage. Their leader, the president, would condemn tens of thousands to die to save his ego, $50, or 150 votes . Again, no serious person can disagree with these obvious statements.

The most serious problem is that, incredibly, but not surprisingly, there is no overall plan to contain the virus. With no overall virus strategy, of course there no plan for the rollout of mass testing. We will have to rely largely upon the uncoordinated movements of hundreds of private companies, local and state governments, and the federal government. Somehow, grasping in the dark, with limited resources, they will have to make do.

And the results are, tragically, just what one would expect. The response of the CDC can only be described as a bureaucratic farce. The American health care system was designed suck the financial blood from the stones that are its patients, not to heal the sick. Our American Chernobyl lurches from one disaster to the next. In these trying times I truly feel for the cognitive dissonance Americans are facing who believe we have the greatest health care system in the world. They should be receiving hazard pay.

After the CDC failed to widely distribute a test kit, dozens of private companies have developed their own and are now ramping up production. Until the past few days we have only had the capacity to test individuals that are hospitalized and health care workers. We have now recovered somewhat, and we are now running about 65,000 tests per day, but the system is creaking. There are long backlogs in testing labs, and serious shortages of the basic materials that labs need to run the tests.

Will the system be able to ramp up to mass testing fast enough? That depends if the companies can increase production fast enough, and if the supply chain holds up. Public health officials have called for 150,000 tests a day, or 4,500,000 per month. For “mass testing”, the ability to test everyone in the United States over the course of a year, that would mean 27.25 million tests per month.

The supply situation

Testing capacity is currently limited by the number of tests kits and associated equipment available, as well as the lab technicians and machines needed to run the tests. Until recently the US only had capacity to test patients hospitalized for coronavirus and health care workers. Only in the past few days has testing been expanded.

The task of running a single test is not straightforward, and consists of a number of separate processes:

  1. Swab the nose of throats with test swabs
  2. Put the swabs in vials with growth media
  3. Vial transported to lab
  4. Technicians extract the virus’s RNA using test extraction kits
  5. Technicians use reagents to turn the RNA into DNA and to amplify the DNA
  6. A PCR test is run, which takes time and materials

Some of the steps can be automated. Expensive automated systems can run many tests at once, but their prohibitive cost means they must be kept in centralized locations that samples are sent to. Smaller testing systems are also available, which may be able to tested at the point of care.

Each of the components in the supply chain have their own complex manufacturing process and their own bottlenecks. Bottlenecks in several areas of the chain are currently preventing widespread testing. Even when samples are taken, there are backlogs in laboratories and it often takes 3 or 4 days to get a result.


The is currently a serious shortage of the test swabs that collect virus sample from patients.

The major manufacturer of test swabs is Copan, which has its headquarters and manufacturing facilities in Lombardy, Italy. US government has been airlifting about a million of the swabs per week.

The other manufacturer is Puritan, located in Guilford Maine. They produce a million per week. They are extending its five days a wekk schedule to six days, and running “at least” 20 hours a day. Biggest challenge for Puritan is a shortage of workers.

Swabs are transported to the lab in transport a transport medium, which is also experiencing shortages.

Extraction kits

There is still a serious shortage of test kits.

Extraction kits are now made by a number of companies, including Roche, Quiagen, Thermo Fisher. The extraction kits use reagents with fairly complex chemicals.

Roche currently ships around 400,000 test kits a week to the United States, or 1.6 million per month. Roche is also ramping up its production. Roche’s kits only work with its proprietary machine. The fully automated test can deliver 384 results per eight-hour shift on its cobas 6800 system, and 960 on its larger cobas 8800.

Thermo Fisher’s TaqPath COVID-19 Combo Kit on its Applied Biosystems 7500 Fast Dx real-time PCR hardware in certain high-complexity laboratories nationwide. It can produce about 5 million per month. It plans to initially distribute the available tests to about 200 labs in the United States. Thermo Fisher is based in Waltham Massachusetts.

Qiagen currently produces about 1.5 million kits per month, hopes to produce 6.5 million per month by April, and 10 million per month by June. Qiagen is ramping up its production. These are global production numbers, however, and it is unclear can be used in the United States.

Hologic expects to produce nearly 600,000 of the tests every month by April. Massachusetts based Hologic manufactures the kit assays in San Diego, where it has 900 employees. Hospitals and labs can run the test on Hologic’s Panther Fusion platform, which in a 24-hour span can process up to 1,150 coronavirus tests.

Hospitals are also developing their own tests. Five University of California medical centers recently developed in house testing. Chicago hospitals also have their own tests.

Extraction requires extraction reagent, which are experiencing the most supply pressure. Companies are starting to ramp up their production of reagents. To get around this supply shortage, some hospitals have created their own extraction kits that use different reagents.


In order to test for the virus, need to convert the RNA into DNA, and then to amplify the DNA. Both need reagents. There are currently shortages of these reagents.

Transcriptase converts RNA to DNA. Primers — short stretches of DNA designed to match up with the viral genetic material — latch onto DNA.

Lab materials

Labs themselves need to source everything else to run the tests. This includes hardware: vortex mixers, microcentrifuges, specially-treated tubes, specially-designed racks, micropipettes to squirt tiny bits of liquid from place to place.

Coronavirus storyline #12: monetary policy

March 18

Although the Federal Reserve has cut interest rates to zero, in most market borrowing is becoming more difficult as liquidity dries up and interest rates rise.

Mortgage rates have increased about 30 basis points in the last week.

Due to low liquidity, yields on 10-year treasuries have also spiked in the past week, doubling to 1.1% even as risk has increased.

As liquidity has dried up, banks are raising interest rates on lending. “With short-term yields surging, U.S. Bank more than doubled the interest rate on $124 million of variable-rate bonds issued by Methodist Le Bonheur Healthcare to 5% — threatening to add almost $4 million a year to its annual debt payments.”

Interest rates on student loans are likely to decrease.

Coronavirus storyline #11: tourism, entertainment, sports

March 17

The effect on the tourism industry seems to be cataclysmic.

FT: Mariott puts tens of thousands of employees on unpaid leave.

WSJ: “The U.S. Travel Association projected Tuesday that total spending on travel in the U.S., including transportation, lodging, retail, attractions and restaurants, would plunge by $355 billion for the year—and that 4.6 million American jobs would be lost.”

“Hotel owners in most every major urban market in the U.S. are now experiencing occupancy levels around 20% or less, a rate that will make it challenging to meet payroll, let alone pay other expenses and meet debt obligations, owners said.”

“American Airlines Group Inc., the world’s biggest carrier, will fly to only two long-haul destinations—Tokyo and London. Executives at British Airways, Korean Air and other large airlines have said they are in a battle for survival. Many smaller carriers, which form the bedrock of the 13,000 new jets ordered from Airbus SE and Boeing Co., have less access to new capital, and aren’t expected to survive.”

Coronavirus storyline #9: manufacturing

March 17: The data is sparse of course at this point. One data point is the New York Manufacturing survey, where an overall index of activity fell by 34 points, the largest fall ever and similar to level seen during the Great Recession.

In Europe many factories are shutting down, either because of the virus or because of supply chain disruptions. France’s PSA (Peugeut, Opel, etc) is closing all European plants. Michelin is shutting factories in France, Italy, and Spain for a minimum of one week. Volkswagen is set to shut its main plant within days because of supply chain issues.

WSJ: Manufacturing continues to hum along. Companies are staggering shifts.

FT: UAW calls for two week halt in US production.

Coronavirus storyline #8: government support for companies and industries

March 17: On the table in the United States $50 billion for airlines. Many industries are coming to the table asking for handouts.

  1. Casino industry
  2. Cruise ships and hotels could be on the table as well.
  3. Tourism industry asks for $150 billion.

There can and should be resistance to the government just handing out cash to the corporations. See this nice Op-Ed by Tim Wu. For years airlines have abused their market power to saddle consumers with absurdly awful service, high feeds, and low quality, while making record profits. Instead of saving the profits for a rainy day, they have saddled the companies with debt, and used most of their cash flow for dividends and buybacks.

In France, a number of packages are being considered: €32 billion in deferred tax and social security, €8.5 billion for two month payments to workers temporarily laid off, €300 billion for bank loans for businesses.

Corona storyline #2: restaurants

Continuing to wrap my head around the key economic story lines. Restaurant and bar employment is about 12.3 million, but as the virus spreads even further people aren’t going out to eat any more.

Data from Open Table shows that restaurant visits are down up to 50% in major cities such as Seattle, New York, and Boston.

Data from Open Table. Graph produced by Paul Goldsmith Pinkham.

This is big trouble for restaurants, who will close en masse if this keeps up. In Seattle, where the outbreak has hit the hardest, already 50 restaurants have closed.

To add to this, many states and cities are starting to show down or restrict the operation of restaurants and bars for the near term:

  1. Boston has banned dining in at restaurants.
  2. Chicago: Bars and Restaurants closed to dine in customers through March 30. Open for delivery and takeout. 
  3. NYC: Bars and restaurants closed to dining in.
  4. NJ: Closed to dining in.
  5. California: Gov calls for closure of bars, occupancy of restaurants to fall by half
  6. DC: Restaurants and bar occupancy to be halved.
  7. Rhode Island closed to dine-in customers through March 30.
  8. NJ: No on site dining
  9. Ohio: Bars and restaurants shut down
  10. Pennsylvania: no dine in at bars and restaurants

While some establishments can transition to take-out and delivery only, it is unclear the revenue drop from this switch and many will be forced to close.

In New York City it seems many are closing down and laying off staff.

In the short term it seems that many places will go out of business due to the fact they still have to pay leases, interest and debt, and sales tax. Quick relief for restaurant owners could come if the sales tax payment is deferred. Other potential relief for restaurant owners could come if lease payments are deferred.

March 17:

  1. Bloomberg: plan to support restaurant workers
  2. The Atlantic: Restaurants will need a miracle. Notes that restaurant employment is about as large as manufacturing employment!

Updated data from Paul Goldsmith-Pinkham. Looks like total reservations down 50-75%

New from FT: Many restaurants closing