What Is the North American Industry Classification System?
Let me tell you about the North American Industry Classification System, or NAICS—it's a business classification system created through a partnership between the United States, Canada, and Mexico. This system makes it straightforward to compare statistics on business activities across all of North America. You'll see companies grouped into industries based on shared or similar production processes. Just so we're clear, don't mix this up with the National Association of Insurance Commissioners or the National Association of Investors Corp., both of which also use the NAIC acronym.
Understanding the North American Industry Classification System (NAICS)
NAICS was set up to replace and update the old U.S. Standard Industrial Classification system. With this new approach, comparing data across North American countries becomes much easier. To keep it current, the system gets reviewed every five years—you can count on that for ongoing relevance.
The History of the NAICS
NAICS comes from a collaborative effort among three key players: the Instituto Nacional de Estadistica y Geografia in Mexico, Statistics Canada, and the United States Office of Management and Budget, which works through its Economic Classification Policy Committee staffed by the Bureau of Economic Analysis, Bureau of Labor Statistics, and the Census Bureau. These groups handle the creation and maintenance of NAICS.
The initial version came out in 1997. Then in 2002, there were major updates to sectors like construction, wholesale trade, retail trade, and information. By 2012, the number of industries dipped slightly, and some sector classifications got adjusted. The most recent revision in 2022 cut the total industries from 1,057 to 1,012, and it also tweaked size standards affecting seven industry sectors.
NAICS Coding System
Compared to the four-digit SIC structure, NAICS offers more flexibility with its hierarchical six-digit coding. It organizes all economic activities into 20 industry sectors—five focused on goods production and the other 15 on services. Every company gets a primary NAICS code that points to its main business line, based on whichever activity brought in the most revenue at a specific location over the past year.
These codes start broad with 20 sector codes, narrowing to 96 three-digit subsector codes, then 308 four-digit industry codes, 689 five-digit industry codes, and finally 1,012 six-digit NAICS codes.
Reading a NAICS Code
When you look at a NAICS code, the first two digits show the broadest business sector for the company. The third digit specifies the subsector, the fourth points to the industry group, the fifth identifies the particular industry, and the sixth digit nails down the specific national industry. Take soybean farming as an example—its code is 111110, breaking down to sector 11, subsector 111, industry group 1111, industry 11111, and full NAICS 111110.
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