October CAGED Data Confirms Structural Decay in Payroll Expansion
The numbers do not lie. Data released by the Ministry of Labor yesterday, November 26, 2025, confirms a brutal contraction in Brazil’s formal labor market. Net job creation for October plummeted to 112,450 new positions, a 31% collapse compared to the 163,000 forecasted by institutional desks. This is the third consecutive month that the General Register of Employed and Unemployed (CAGED) has missed the mark, signaling that the Central Bank of Brazil’s (BCB) restrictive monetary policy is finally breaking the back of the real economy.
The 13.25 Percent Ceiling
Capital is currently too expensive for expansion. With the SELIC rate held at 13.25% following the COPOM meeting earlier this month, the cost of credit has effectively paralyzed mid-sized industrial players. Real interest rates, adjusted for the 12-month IPCA inflation currently hovering at 4.75%, remain among the highest in the G20. According to the Central Bank of Brazil’s latest Focus Bulletin, market participants have revised their 2025 year-end GDP growth downward from 2.1% to 1.7% within the last 48 hours.
Sectorial Destruction: Retail and Consumables
The transmission mechanism of high rates is most visible in the credit-sensitive retail sector. Magazine Luiza (MGLU3) is no longer a growth story; it is a debt-servicing story. As of the Q3 2025 earnings call, the company’s financial expenses reached R$ 840 million, consuming nearly 45% of its operating EBITDA. For every 100 basis points the SELIC stays above 12%, Magalu loses approximately R$ 120 million in net profit potential. This has led to a hiring freeze across its logistics hubs in the interior of São Paulo.
Ambev (ABEV3) faces a different but equally grim reality. While historically a defensive play, the producer is seeing a volume contraction in its premium portfolio. According to Reuters market data, disposable income in Brazil’s middle class has decreased by 3.4% in real terms over the last six months. Ambev’s decision to halt expansion on its Minas Gerais bottling plant directly correlates with the 14% drop in hospitality-sector job creation recorded in the October CAGED report. When the cost of capital exceeds the Return on Invested Capital (ROIC), as it now does for several industrial segments, payroll is the first line item to be liquidated.
The Fiscal Disconnect
The BCB is trapped. Despite the slowing labor market, the bank cannot pivot to rate cuts due to the government’s failure to meet fiscal targets. The 2025 primary deficit is projected to hit R$ 255 billion, significantly wider than the R$ 180 billion target set in the early-year budget. This fiscal profligacy forces the BCB to maintain high rates to prevent a full-scale currency blowout. The BRL/USD pair hit 5.88 yesterday, increasing the cost of imported inputs and creating a “stagflationary trap” where unemployment rises while prices remain sticky.
External Pressure and the Fed
Global dynamics offer no reprieve. With the U.S. Federal Reserve maintaining a “higher for longer” stance through late 2025, the interest rate differential between Brazil and the U.S. is narrowing. This forces the BCB to keep the SELIC elevated to prevent capital flight. Per Bloomberg’s Brazil Financial Conditions Index, liquidity has tightened to levels last seen during the 2015-2016 recession. Institutional investors are currently favoring fixed income (Tesouro Direto) over equities, with the Ibovespa struggling to maintain the 125,000 level.
Watch the January 2026 Milestone
The next critical data point is the January 20, 2026, COPOM meeting. If the December inflation print (IPCA-15) exceeds 0.60%, expect the BCB to push the SELIC to 13.50% or 13.75%, regardless of the rising unemployment figures. For investors, the alpha is no longer in broad market indices but in short-duration credit and companies with zero net debt. The labor market’s pain is the price the Central Bank is willing to pay to maintain its institutional credibility.
