US consumer prices, industrial production fall in December

The latest US economic data show that the recession very likely hasn't ended. Bloomberg reports:

Consumer prices and industrial production tumbled in the U.S. as a record slide in retail sales destroyed companies’ pricing power and idled more than a quarter of factory capacity.

The cost of living fell 0.7 percent in December, capping the smallest annual increase since 1954, the Labor Department said today in Washington. Industrial output shrank 2 percent, and the capacity-utilization rate slid to 73.6 percent, the Federal Reserve said...

The Reuters/University of Michigan preliminary index of consumer sentiment rose to 61.9 from 60.1 in December.

Based on the industrial production data, Spencer at Angry Bear says that the recession in the US is likely to be severe.

From a level of 100 at the peak industrial production has now fallen to 92.0, or roughly at the average trough level for the 10 post WW II recessions of 92.3%... [T]here is little doubt that by the time this recession is over it will have been among the worse post WW II recessions. If you rely on nothing else, the current level of inventories very strongly implies that manufacturing output has yet to bottom.

Corporate profits are headed for record declines as well.

[T]he spread between falling prices as measured by the PPI and unit labor cost implies that corporate and/or S&P 500 profit margins are now falling at post WW II record rates. Together with sharply falling output and write-offs in the financial sector it clearly looks like the drop in corporate profits and/or S&P 500 earnings will set a post WW II record decline this cycle.

Indeed, Paul Krugman thinks that the US faces a real risk of deflation.

... These days I’m looking at the TIPS spread: the difference between nominal US bond rates and rates on Treasury Inflation-Protected Securities. This spread is an indicator of expected inflation. And what it shows isn’t good...

More and more, this looks like a Japan-type trap.

Still, maybe there is light at the end of the tunnel. From Reuters:

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell in the week ending Jan 9 to 108.6 from 109.3 in the previous week, initially reported as 109.4.

The index's annualized growth rate ticked up to negative 25.5 percent from negative 26.9 percent, revised from minus 26.8 percent. It marked its highest reading since the week to Oct. 24, 2008, when it was minus 22.8 percent.