34 Occupational Outlook Quarterly ● Fall 1999

The North American Industry Classification System

will replace the Standard Industrial Classification,

establishing a new measure of all industry in the

United States, Mexico, and Canada.

The North American Industry

Classification System: Change

on the horizon

by Norman C. Saunders

Since the late 1930s, Federal statistical agencies have

studied industries using definitions from the Standard Industrial Classification (SIC) manual. The SIC was updated

from time to time through revisions. But major changes in

both the U.S. and world economies forced development of a

new system for defining industries: the North American Industry Classification System (NAICS). This article describes

the Government’s industry classification system, tracking

its creation through the NAICS replacement of the SIC.

Classifying industries

For over 60 years, Government economists and statisticians have been gathering, analyzing, and comparing data

for detailed industries in our economy. The former Bureau

of the Budget (now the Office of Management and Budget)

in the Executive Office of the President published the first

SIC in 1939 to ensure that everyone worked from common

definitions of those industries.

Through several revisions, the SIC governed the way

economists and statisticians viewed industries in the U.S.

economy. But several problems emerged as changes at

home and abroad affected the way industries fit the SIC

definitions. NAICS was designed to address those problems.

Norman C. Saunders is director of research programs in the Office of

Employment Projections, BLS, (202) 606-5701.
Occupational Outlook Quarterly ● Fall 1999 35

 Table 2

Examples of new NAICS industries

◆ Automotive oil change and lubrication shops

◆ Bed-and-breakfast inns

◆ Casino hotels

◆ Cellular and other wireless telecommunications

◆ Convenience stores

◆ Credit card issuing

◆ Diet and weight reducing centers

◆ Fiber optic cable manufacturing

◆ Food (health) supplement stores

◆ Gasoline stations with convenience stores

◆ Management consulting services

◆ Pet care services

◆ Satellite telecommunications

◆ Semiconductor machinery manufacturing

◆ Software publishers

◆ Telemarketing bureaus

◆ Temporary help services

◆ Warehouse clubs and superstores

 Table 1

Comparison of major industry groupings for NAICS and SIC

Number of

Sector NAICS group industries

Total 713

11 Agriculture, forestry, fishing, and hunting 42

21 Mining 10

22 Utilities 4

23 Construction 28

31-33 Manufacturing 179

42 Wholesale trade 69

44-45 Retail trade 62

48-49 Transportation and warehousing 42

51 Information 28

52 Finance and insurance 32

53 Real estate and rental and leasing 19

54 Professional, scientific, and technical services 35

55 Management of companies and enterprises 1

56 Administrative and support and waste

management and remediation services 28

61 Educational services 12

62 Health care and social assistance 29

71 Arts, entertainment, and recreation 23

72 Accomodation and food services 11

81 Other services 30

92 Public administration 29

Number of

Division SIC group industries

Total 904

A Agriculture, forestry, and fishing 58

B Mining 31

C Construction 26

D Manufacturing 459

E Transportation and public utilities 67

F Wholesale trade 69

G Retail trade 64

H Finance, insurance, and real estate 53

I Services 50

J Public administration 27

SIC revisions. Economies evolve, and some industries

disappear even as others appear. For this reason, economists in the Executive Office of the President prepared extensive reviews and revisions of the SIC in 1946, 1958,

1967, 1972, and 1987, with minor revisions occurring between the major revision years. In every case, the revised

SIC maintained the primary structure of the original classification schemes established in the 1930s—that is, industries continued to be classified according to the major categories most prominent in the 1930s and 1940s, including

agriculture, mining, and manufacturing—even as some of

them, such as mining and many manufacturing industries,

shrank over time.

The revisions allowed economists, statisticians, and

other users to develop and estimate comparable data series

over long periods. Such evolutionary change in the SIC

seemed to work well and eased the maintenance of timeseries data as industry definitions shifted with time.

Problems arising. In the long term, however, evolutionary development could not sustain the SIC. Three major

problems emerged: definitional differences, shifts in the

industrial economy, and the need for a more comprehensive approach to industry classification due to the signing

of the North American Free Trade Agreement (NAFTA).

Definitional differences began to creep into the classification scheme because of an inconsistency in how industry

definitions were based. The SIC defined most industries
36 Occupational Outlook Quarterly ● Fall 1999

 Table 3

Major programs affected by NAICS shift Expected

Program Data year publication date

Bureau of Labor Statistics programs

Current Employment Statistics Survey (monthly) 2002 2003

Employment and Wages Report (annual) 2000 2001

Occupational Employment Statistics (annual) 2002 2003

Producer Price Index/1997 Net Output Indexes (monthly) 1997 2004

Census Bureau programs

1997 Economic Census

Advance employment, receipts, and payroll 1997 1999

Bridge Between NAICS and SIC 1997 March 2000

Comparative Statistics Report 1997 January 2000

Manufacturing surveys

Annual Survey of Manufactures 1998 June 2000

Current Industrial Reports 1998 2000

Manufacturers’ Shipments, Inventories, and Unfilled Orders 2001 2001

Services surveys

Annual Trade Survey (wholesale) 1998-99 March 2001

Annual Retail Trade Survey 1998-99 April 2001

Retail Trade Monthly 2001 2001

Service Annual Survey 1998-99 February 2001

Transportation Annual Survey 1998-99 February 2001

Wholesale Trade Monthly 2001 2001

Other Programs

Annual Capital Expenditures Survey 1999 February 2001

County Business Patterns 1998 March 2000

Manufacturing and Trade Inventory and Sales 2001 2001

Quarterly Financial Report 4th quarter 2000 March 2001

Research and Development Survey 1997-98 April 2001

Bureau of Economic Analysis programs

Annual Foreign Direct Investment in the United States Survey 1998 2000

Annual U.S. Direct Investment Abroad Survey 2000 2002

Benchmark Input-Output Accounts 1997 2002

Corporate Profits 1998 2001

Foreign Direct Investment in the United States Benchmark Survey 1997 1999

Gross Product Originating by Industry 2001 2002

Gross State Product by Industry 2001 2003

Quarterly Foreign Direct Investment in the United States Survey 2001 2001

Quarterly U.S. Direct Investment Abroad Survey 2002 2002

Real Inventories, Sales, and Inventory-Sales Ratios, Manufacturing and Trade 2001 2002

State Personal Income 2000 2001

U.S. Direct Investment Abroad Benchmark Survey 1999 2001
Occupational Outlook Quarterly ● Fall 1999 37

classification system. In 1998, the NAICS was published.

The NAICS improves upon the SIC by using a productionbased framework throughout to eliminate definitional differences; identifying new industries and reorganizing industry groups to better reflect the dynamics of our

economy (see tables 1 and 2); and allowing first-ever industry comparability across North America, addressing the

monitoring provision of NAFTA.

In the future, all industry-based data developed by the

Bureaus of the Census, Economic Analysis, and Labor Statistics, as well as any other Federal statistical agency producing industry-based statistics, will be transformed from

an SIC to a NAICS basis. The changeover schedule varies

by agency. (See table 3.) In most cases, there will be an

overlap period—that is, one period in which statistics will

be developed and released using both the NAICS and the

SIC. Beyond this single-period overlap, however, there are

no plans for long-run, backward revisions of SIC-based

measures to the NAICS scheme.

Ongoing development

The NAICS as published in 1998 is far from a finished

product. Just as the SIC before it evolved, the NAICS will

continue to evolve over the coming years. In addition to

regular updates to reflect changes in our economy, all three

North American countries will review the NAICS every 5

years and make revisions as necessary.

To learn more about the NAICS or some of the problems that may exist in the transition from SIC to NAICS,

visit the Bureau of the Census NAICS website, http://

www.census.gov/epcd/www/naics.html.

based on production relationships, the traditional concept

of classifying according to an industry’s method of production. Others were defined based on demand, an industry classification focusing on markets rather than on production methods. Simply revising the existing system would

not clarify differences resulting from its original design.

For example, many apparel industries were defined

based on categories such as men’s pants or women’s pants,

even though the products were manufactured in much the

same way: They were classified in different industries because of their different markets. Many manufactured metal

products, on the other hand, were categorized in an industry based on differing production methods, such as “chain

made from purchased wire” (SIC 3496) versus “chain

made from forged steel” (SIC 3462). In the latter case, the

end product was similar, but the input requirements differed.

Incremental shifts in the U.S. industrial economy have

occurred over time. During the 1980s and 1990s, however,

many economists noticed fundamental changes in the ways

many industries do business in the United States. This type

of structural change reflects the concept of “contracting

out,” the practice of purchasing services such as accounting, legal, and buildings maintenance from other industries

instead of hiring employees within the industry. It became

increasingly obvious that another revision of the existing

classification system would not address the structural

changes that had taken place—or worse, it might mask important shifts that are still happening.

NAFTA formalized a free-trade area between the

United States, Canada, and Mexico in 1993. At that time,

U.S. industry classification was governed by the 1987 SIC

revision; Canada’s classification system dated from 1980;

and Mexico had no industry classification system (its first

was published in 1994). None of these classification systems was consistent with the others. To meet the monitoring requirements built into NAFTA, a coordinated industry

classification needed to be developed across all three

economies.

Creation of the NAICS. By the early 1990s, there was an

obvious need for a new industry classification system that

addressed these structural and comparability issues. In

1992, the Office of Management and Budget created the

Economic Classification Policy Committee, comprising

members from all the major Federal statistical agencies.

The committee’s task: to conduct a “fresh slate” examination of economic classifications.

The committee worked in cooperation with the statistical

agencies of Canada and Mexico to create a uniform industry