"Consumer confidence in Canada is still 20 points below its pre-recession level but the prerecession level should not be used as a benchmark," said CIBC economic Benjamin Tal. "For most of the decade, consumer confidence was much higher than what would be expected based on households' fundamentals."

Instead, Tal said, observers need to consider CIBC's "consumer capability" index, which tracks Canadians' ability to spend, instead of their mood about the economy, which is tracked by reports on consumer confidence.

The capability index compares key indicators against their longterm average as well as their most recent trend. For instance, if income growth was above its longterm average and/or rising faster than its historical trend, it would receive a positive score.

The current reading of the capability index shows it returning to pre-recession levels, while the gap between capability and confidence has narrowed relative to the wide gap seen during most of the decade.

Yet the improvement in the capability index was not the result of strong income growth.

Disposable income, in fact, has been trending downward in the past year.

As Tal reports, the debt-to-income ratio is still rising, and as Statistics Canada reported last week, household debt as a share of personal disposable income rose to a record 150.8 per cent at the end of June.

But the key point is that the speed at which the debt-to-income ratio is rising - a much more telling indicator - is in fact slowing. Other factors lifting the capability index include a higher savings rate, lower personal bankruptcies and relatively low long-term unemployment, Tal said.