NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM

The North American Industry Classification System (NAICS) groups establishments into industries according to their primary economic activities. NAICS facilitates the collection, calculation, presentation, and analysis of statistical data by industry. The North American Free Trade Agreement countries—United States, Canada, and Mexico—developed the system to provide comparable statistics among themselves. Federal statistical agencies in these countries use NAICS to produce information by industry on inputs and outputs, productivity, industrial performance, unit labor cost, and employment. Both government and business use this information to understand industries and the economy.

NAICS has a production-oriented conceptual framework. It groups establishments according to similarity in the processes used to produce services or goods. This supply-based framework delineates differences in production technologies. In this system, an industry is not solely a grouping of products or services.

BACKGROUND

NAICS replaced the Standard Industrial Classification (SIC) system in the United States. The SIC system, established in the 1930s and revised through 1987, drew increasing criticism as rapid changes affected both the U.S. and world economies in the late 1980s.

In 1992 the Office of Management and Budget (OMB), an executive office of the president, established the Economic Classification Policy Committee (ECPC). The ECPC was chartered to provide a "fresh-slate" examination of economic classifications for statistical purposes. The ECPC ultimately joined with Mexico's Instituto Nacional de Estadistica, Geografia e Informatica and with Statistics Canada to develop the NAICS. The NAICS codes are revised on a regular five-year cycle.

The U.S. Bureau of the Census, the U.S. Bureau of Economic Analysis, and the U.S. Bureau of Labor Statistics (BLS) continue to develop NAICS. NAICS implementation began for reference year 1997 in the United States and Canada, and for 1998 in Mexico. The U.S. Census Bureau used NAICS to prepare the 1997 Economic Census, which became available in 1999.

Other agencies implementing NAICS include the Federal Reserve Board and federal departments (e.g., Labor, Commerce, Defense, and the Treasury).

STRUCTURE OF NAICS

NAICS uses a six-digit code to identify particular industries, in contrast to the four-digit SIC code. The structure of NAICS is hierarchical. The first two digits of each code indicate the sector. The other digits and what they indicate are:

Third digit—Subsector

Fourth digit—Industry group

Fifth digit—NAICS industry

Sixth digit—National industry

In the manual North American Industry Classification System: United States, 2002 (NAICS: United States, 2002 ), there are codes for 1,179 U.S. industries.

NAICS classifies by sectors first. The NAICS: United States, 2002 manual presents twenty sectors, their two-digit codes, and the distinguishing activities of each, as follows:

11 Agricultural, Forestry, Fishing and Hunting

This sector includes growing crops, raising animals, harvesting timber, and harvesting fish and other animals from farms, ranches, or the animals' natural habitat.

21 Mining

Extracting naturally occurring mineral solids, such as coal and ore; liquid minerals, such as crude petroleum; and gases, such as natural gas; and beneficiating (e.g., crushing, screening, washing, and flotation) and other preparation at the mine site, or as part of mining activity.

22 Utilities

Providing electric power, natural gas, steam supply, water supply and sewage removal (through sewage systems and treatment facilities).

23 Construction

Erecting buildings and engineering projects (e.g., highways), including new work, additions, alterations, or maintenance. Site preparation for new construction and land subdivision are also part of this sector.

31–33 Manufacturing

The mechanical, physical, or chemical transformation of material, substances, or components into new products.

42 Wholesale Trade

Wholesale establishments sell merchandise as an intermediate step in the distribution process and provide services incidental to such sales. Wholesalers can be either merchants or establishments arranging for the purchase or sale of goods owned by others.

44–45 Retail Trade

Retail establishments sell to the general public in the final step of distribution of merchandise and provide services related to such sales.

48–49 Transportation and Warehousing

Providing transportation of passengers and cargo, warehousing and storing goods, scenic and sightseeing transportation, and supporting these activities.

51 Information

Producing and distributing information and cultural products, providing the means to transmit or distribute these products, data or communications, and processing data.

52 Finance and Insurance

Involves the creation, liquidation, or change in ownership of financial assets and/or the facilitation of financial transactions.

53 Real Estate and Rental and Leasing

Renting, leasing, or otherwise allowing the use of tangible or intangible assets (except copyrighted works), and providing related services.

54 Professional, Scientific, and Technical Services

Establishments in this sector provide professional, scientific, and technical services for the operations of other organizations.

55 Management of Companies and Enterprises

Includes: (1) holding securities of companies and enterprises, for the purpose of owning controlling interest or influencing their management decisions, or (2) administering, overseeing, and managing establishments of the company or enterprise, including strategic planning and decision making.

56 Administrative and Support and Waste Management and Remediation Services

Establishments in this sector perform routine support activities for the day-to-day operations of other organizations.

61 Educational Services

Providing instruction and training in a wide variety of subjects.

62 Health Care and Social Assistance

Providing health care and social assistance for individuals.

71 Arts, Entertainment, and Recreation

Operating facilities or providing services to meet varied cultural, entertainment, and recreational interests of their patrons.

72 Accommodation and Food Services

Providing customers with lodging and/or preparing meals, snacks, and beverages for immediate consumption.

81 Other Services (except Public Administration)

Providing services not elsewhere specified, including repairs of equipment or machinery, religious activities, grant making, advocacy, laundry, personal care, death care, and other personal services.

91–93 Public Administration

Administration, management, and oversight of public programs by federal, state, and local governments with executive, legislative, and judicial authority.

EXAMPLE

NAICS code 711211 identifies the Sports Teams and Clubs industry in the United States and Canada. It belongs to:

Sector 71—Arts, Entertainment, and Recreation

Subsector 711—Performing Arts, Spectator Sports, and Related Industries

Industry Group 7112—Spectator Sports

NAICS Industry 71121—Spectator Sports

National Industry 711211—Sports Teams and Clubs

The NAICS: United States, 2002 manual gives a detailed description of the Sports Teams and Clubs industry in the three countries.

ASSIGNMENT OF NAICS CODES

NAICS is a classification system for establishments. NAICS: United States, 2002 defines an establishment as "the smallest operating entity for which records provide information on the cost of resources—materials, labor, and capital—employed to produce the units of output." In the United States the establishment is generally a single physical location using a distinct process to produce goods or services. An enterprise (company) may consist of more than one establishment. Each establishment within the enterprise is assigned a NAICS code. Statistical agencies such as the Census Bureau and the BLS assign NAICS codes based on information reported to them on administrative, survey, and census reports. The Census Bureau assigns a NAICS code to each establishment based on its primary activity.

INTERNATIONAL COMPARABILITY

Comparable data for the United States, Canada, and Mexico are generally available at the five-digit NAICS industry level. The sixth digit of the NAICS code is used to define national industries, which differ among the three countries because of differences in economic and organizational structures.

Many other countries collect data using the International Standard Industrial Classification (ISIC) system established by the United Nations (UN) in 1948. The UN's Statistical Commission revised the ISIC structure and codes in 1958, 1968, and 1989.

Similar to NAICS, ISIC primarily classifies establishments (rather than enterprises and firms). The criteria used to classify ISIC division and groups are:

• The type of goods and services produced
• The uses of goods and services produced
• The inputs, process, and technology of production

The third classification criterion of the ISIC is the conceptual foundation of NAICS. Hence, NAICS is aligned more closely with ISIC than the 1987 SIC system. Statistics compiled on NAICS are comparable with statistics compiled according to ISIC, Revision 3.

REVISION OF NAICS

NAICS is more timely than the SIC system it replaced because of its revision process every five years. Revisions to NAICS are made in consideration of its four principles:

1. Production-oriented classification
2. Special attention to new and emerging industries, service industries, and industries involved in the production of advanced technology
3. Time series continuity when possible
4. Compatibility with the two-digit level of the ISIC

As scheduled, NAICS: United States, 1997 was revised to become NAICS: United States, 2002. NAICS: United States, 2002 included revisions to the structures of the Construction and Information sectors and additional detail in the Retail Trade sector.

The revision process for the 2007 NAICS began when the OMB published a Federal Register Notice in March 2005 seeking comments on the ECPC proposals, which were due by June 9, 2005. Proposals include separating the Telecommunications subsector into three groups (wired, wireless, and satellite), as well as a fourth group for other telecommunications services. Another proposal creates a separate industry for Biotechnology Research and Development, distinct from Research and Development in the Physical, Engineering and Other Life Sciences. These proposals reflect emerging industries and advanced technology.

NAICS AND THE NORTH AMERICAN PRODUCT CLASSIFICATION SYSTEM

The North American Product Classification System (NAPCS) is a ten-digit code that denotes the principal products and services of an industry. It extends the six-digit NAICS U.S. Industry code to the product level. The seventh digit identifies the product class. The eighth digit signifies the BLS link code. The ninth and tenth digits taken together uniquely designate the product. The Census Bureau uses the codes for its Current Industrial Reports program.

WEBSITES OF INTEREST

For updated information from the Census Bureau about implementation of NAICS: http://www.census.gov/naics

For information on updates to NAPCS: http://www.census.gov/eos/www/napcs/napcs.htm

see also Service Industries

bibliography

Executive Office of the President, Office of Management and Budget. (2002). North American Industry Classification System: United States, 2002. Lanham, MD: Bernan.

Office of Management and Budget. (2005, March 11). North American Industry Classification System—Update for 2007. Federal Register 70 (47), 12390–12399.

Mary Michel