What is "NAICS"?
NAICS (rhymes with "lakes") stands for the North American Industry Classification System. With the release of data in March 2003, NAICS replaced the current Standard Industrial Classification (SIC) system and now serves as the new structure for classifying business activity in the United States.
How is NAICS structured?
NAICS codes are organized hierarchically. The highest category, Domain, is divided into Goods-Producing and Service-Providing. These two sub-categories then split into Supersectors such as Leisure and Hospitality and Financial Activities, which break down into Sectors, such as Accommodation & Food Services and Finance & Insurance, and ultimately branch out into Industries such as Hotels and Insurance Carriers. NAICS codes extend to 6 digits. For example:
| NAICS Code | 2002 NAICS Description |
|---|---|
| 311 | Food Manufacturing |
| 3111 | Animal Food Manufacturing |
| 311111 | Dog and Cat Food Manufacturing |
| 311119 | Other Animal Food Manufacturing |
A more thorough description of the NAICS hierarchy can be found in the NAICS Aggregation chart.
Which data series are most affected by NAICS, and what historical data are available?
The Current Employment Statistics (CES) Program and the Covered Employment and Wages (ES-202) Program have undergone the greatest changes. Since data classified according to NAICS is not comparable with data based on the SIC, the SIC-based CES and ES-202 time series have ended. In addition, historical SIC-based CES employment data are no longer available.
To allow historical comparisons, the historical CES time series was reconstructed on a NAICS basis for the period 1990 to 2000. Currently, historical NAICS-based CES data are available for the state, metropolitan areas, and counties outside metropolitan areas for the period 1990 to present.
NAICS-based ES-202 data, extending back to 2000, as well as SIC-based data from the ES-202 program for the period 1975 to 2000, are available on the Department of Labor's Web site.
Why the switch from the SIC to NAICS?
The SIC was developed in the 1930s, when the U.S. economy was manufacturing-dominated. Today’s services-centered economy has rendered the classification structure of the SIC system obsolete, as the SIC often failed to adequately account for new and emerging service industries. NAICS rectifies this shortcoming and, moreover, establishes consistent classification standards, meaning that, for the first time, industry data from Canada and Mexico can be compared with U.S. industry data.
How does NAICS improve upon the SIC?
Process, not product orientation — NAICS establishes a unified economic concept for defining industries, by grouping firms together based on their use of similar raw material inputs, capital equipment, and labor, or how they produce an end product or provide a service. For example, software publishers are grouped in the same NAICS subsector as magazine publishers, newspaper publishers, etc. because all are engaged in issuing copies of works for sale to the general public in one or more formats, including print, CD-ROM, or online. In contrast, under the SIC, firms were grouped in industries based on what end product they produced or service they provided: software publishers, therefore, were grouped with other firms engaged in data processing and computer programming services, reproduction of software, and other computer-related services. This “process”-oriented classification methodology yields industrial groupings that are more homogenous, and thus better suited for economic analysis than SIC groupings.
Increased relevance — NAICS recognizes over 150 new and emerging service-providing industries that lacked a satisfactory categorization structure under the SIC. For example, NAICS has an Information sector that includes software publishers, telecommunications resellers, satellite telecommunications, paging, and cellular telecommunications. NAICS also reorganizes the SIC’s Services division into four Services supersectors: Professional and Business Services, Educational and Health Services, Leisure and Hospitality, and Other Services.
Increased industry precision — NAICS uses a six-digit classification system (compared with the four-digit system of the SIC) with 20 sectors (as opposed to the 10 divisions of the SIC), providing the coding structure with both increased flexibility and more room for expansion and revision.
Data comparability — Since our NAFTA trading partners, Canada and Mexico, are also converting to NAICS, it will be much easier to compile economic statistics for regions that straddle international borders (e.g. the Buffalo-Niagara Falls Metropolitan Area and the St. Catherines-Niagara Falls, Ontario, Canada Metropolitan Area).
More timely updates — NAICS industry lists will be updated every five years, whereas the SIC was updated every 10-15 years (its last revision took place in 1987).
Will NAICS-based data be comparable with SIC-based data?
No, except at the total nonfarm employment level (since the actual number of jobs isn’t changing, only the composition of the industries into which they are categorized). In fact, the non-comparability of data is one of the most significant aspects of the shift in classification systems. Please see the above FAQ on historical data for more information on the impact of this change.
Will employment levels in some sectors change with the switch from the SIC to NAICS?
Yes. Some sectors or industries that share the same name under the SIC and NAICS will not have the same employment levels (see figures below). For example, most publishing employment, which was classified as manufacturing under the SIC, has moved into a new NAICS supersector called Information. Similarly, manufacturing headquarters, which were classified under manufacturing in the SIC, are classified under Management of Companies and Enterprises under NAICS. Consequently, manufacturing represents a smaller share of the economy under NAICS than under the SIC. In another major change, the category of food services and drinking places has shifted from retail trade, where it accounted for one-third of that sector’s employment, to the NAICS supersector of Accommodation and Food Services.
Are there sources for more information about NAICS?
Yes. The Census Bureau Web site has a section on NAICS that includes tables that compare NAICS and the SIC.
Also, the Bureau of Labor Statistics devotes a section of its Web site to explaining changes related to NAICS.