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When it comes to Canadians' household debt loads, the problem is not so much about swelling debts any more. It's about slowing incomes.

In a new report from Merrill Lynch, economist Emanuella Enenajor says Canadian consumers have been undergoing a "stealth deleveraging" – a significant reduction in debt accumulation that has largely flown under the radar because of the focus on the market's favoured measure of household debt loads, the debt-to-disposable-income ratio. This sat at a record 164 per cent at the end of 2013 – widely seen as evidence that Canadians simply can't break their reckless and unsustainable debt habit.

(We've all heard the warnings about how this puts the whole economy at risk when the day of reckoning comes – complete with reminders that this is exactly what led the U.S. economy into a credit-crisis-fuelled Great Recession. A more compelling bogeyman would be hard to find.)

But in fact, Canada's household debt growth has slowed dramatically from the pre-recession pace; Ms. Enenajor noted that total debts have grown at an average of 5.7 per cent annually since 2010, compared with 8.5 per cent in the decade prior to the 2008-2009 financial crisis. Statistics Canada data show that household debt growth in the fourth quarter was just 4.5 per cent year over year, the slowest since 2001. Non-mortgage debt (credit plus loans) grew just 0.1 per cent last year.

The problem is, the other half of the equation has slowed as well. Disposable income has grown 4.3 per cent annually, on average, since 2010, compared with 5.1 per cent annually in the decade before the financial crisis.

In 2013, household disposable income rose a thin 3.5 per cent, and was up a mere 3.2 per cent year-over-year in the 2014 first quarter. This, more than increased debt accumulation, is responsible for the continued rise of the debt-to-income ratio.

Canadian households' debt-to-net-worth ratio – which takes into account the value of the assets acquired with much of that debt, such as real estate, and thus may be a more complete measure of the household debt burden – has been generally declining since the recession, and ended 2013 at its lowest level since the middle of 2008. Ms. Enenajor said that while rising asset values (namely, the continued strength in the residential real estate market) have helped, the key has been the slowdown in household debt growth. People are also saving more as their borrowing has slowed.

In short, most elements of Canada's household imbalances are headed in a healthier direction – but disposable income is the fly in the ointment.

"The rising debt-to-disposable-income ratio is not an indictment of Canadians' spendthrift ways – rather, it shows that faster disposable income growth is the key missing element of improved household financial health," she wrote.

The problem is, the shift toward spending restraint and deleveraging results in reduced consumption – and, by extension, slower economic growth. Ms. Enenajor noted that real per capita consumption growth has averaged just 1.4 per cent annually since the recession, versus 2.5 per cent in the decade prior. Deleveraging itself is holding back the kind of expansion that would spark wage inflation and, thus, accelerate disposable income. Can anyone say Catch-22?