Austerity measures in Europe, and concerns that U.S. job growth will be inadequate (below 150,000 new jobs per month) in the third and fourth quarters, has understandably increased concern about a slowing U.S. economic recovery.

But are the stars starting to line-up for something worse than that, from a macroeconomic standpoint, such as a double-dip recession? Perhaps not. Here's why: historically, an inverted yield curve precedes a double-dip recession. So far, the yield curve is not close to inversion.

As stock prices are plunging around the world, demand for U.S. Treasuries -- which are viewed as a safe haven for investors during times of economic uncertainty -- is skyrocketing.

This increase in demand is pushing the price of Treasuries higher and, thanks to the inverse relationship between bond prices and yields, is pushing Treasury yields lower. We are especially seeing this happening at the long-term end of the yield curve.

As longer-term yields drop, the Treasury yield curve is flattening. At the beginning of June, yields on 10-year and 30-year Treasuries were near 3.4% and 4.3%, respectively. Now, yields on 10-year Treasuries have dropped below 3% -- their lowest level since April 2009 -- and yields on 30-year Treasuries are flirting with 4%.

This is a potential problem for two reasons.

Where is the bond market headed?

Fear over the increased debt supply for various stimulus packages triggered heavy selling in U.S. Treasuries. The 30 year long bond fell over 3 points, now yielding 2.99%. The yield curve has steepened in the past week. This happens when longer term bonds and notes fall faster than shorter term maturities such as Treasury notes and bills.

There is concern over the Treasury's need to finance large chunks of U.S. debt. A new round of quarterly refunding has raised fear about the market's ability to absorb the $144 billion dollars worth of Treasury coupons in that two-week period.

It is expected that the first half of the year will be a volatile period for U.S. Treasuries. We have never had such a large debt to finance, so no one really knows how investors will react when all of this supply hits the market.

What do you think would happen if investors fail to step up and buy our debt?

The U.S. economy could be growing faster before the inauguration of the new U.S. president. Bloomberg News reported Monday.

The forecast is based on the rise in the 5-year U.S. Treasury yield from its lowest level relative to the 2- and 10-year notes since 2001. The last two times that occurred, during the 1990 and 2001 recessions, the economy started to expand within nine months.

Famous last words

Economist David H. Wang agreed that the indicator has accurately predicted previous recoveries. "It's been an accurate indicator, famous last words," Wang told BloggingStocks Monday.

However, Wang cautioned that the nation's public officials, corporate America and individuals can't overlook, or neglect to prepare for, what's in-between.

Or, what I really wanted to title this post: Why isn't the collapse of the housing market and an inverted yield curve driving the economy into a recession?

Last week's GDP growth of 4% was certainly a shocker. With the housing market suffering some serious weakness, the U.S. fixed income market trading like a complete mess and the yield curve being inverted (short-term rates higher than long-term rates) for more than a year, conventional wisdom would tell us that the US economy should be very close to a recession. However, GDP data is telling us quite the opposite.

With roughly 70% of the U.S. GDP derived from the consumer, the withdrawal of credit from the primary and secondary mortgage markets led many pundits to conclude the consumer is tapped out and therefore the U.S. economy is in for some serious trouble.

However, these proclamations of consumer collapse have failed to materialize. Why is that? The answer is a tight labor market, with wage increases more than offsetting weakness in the mortgage market. Three cheers for labor.

After twenty-five years of open markets, U.S. labor is now very competitive as lower-skilled jobs have moved offshore and jobs requiring higher-end skills have boomed. Most of the leading job creators, NASDAQ companies like Microsoft Corporation (NASDAQ: MSFT), Oracle Corporation (NASDAQ: ORCL) and Cisco Systems (NASDAQ: CSCO), were either just getting started or did not exist when this job growth boom began. Now there are hundreds, if not thousands, of companies that are seeking higher skilled employees.

At the end of the day, last week's GDP data demonstrates that good times are ahead for U.S. labor. After going through a brutal transition from a manufacturing to a service economy, labor appears it has the upper hand once again. The terribly weak mortgage market will be more than offset by the positive effects of a tight market for labor.

Stock and bond market volatility has picked up the past few weeks as the yield on the ten-year bond increased from 4.6% to 5.14%, a big increase in what has been a mundane long-end of the curve for quite some time.

Pretty much following the bursting of the tech-telecom bubble and 9/11, the bond market has been stuck in a very tight trading range. Investors developed a Pavlovian response running into bonds on any bad financial news or events surrounding oil or terrorism. However, it appears that this might be about to change. The 10-year bond is oversold and due for a considerable rally, but after a bond market rally, look for a behavioral shift to equities to begin.

The returns for equities will be too promising to pass up and greed will win out over fear. Do not read too much into the recent selloff in bonds. Too much of the asset-allocation pie was directed into bonds, it is time for it to shift back into equities.