The Essence of NAICS for Your Business Growth
The North American Industry Classification System (NAICS) is a business classification system collaboratively developed by the United States, Canada, and Mexico. This powerful system enables the comparison of statistics across North America’s business activities, effectively classifying companies into industries with similar production processes.
Embrace Change with the NAICS Evolution
The NAICS was created to modernize and supersede the U.S. Standard Industrial Classification system, aiming for high comparability across North America. To ensure it stays relevant in the ever-evolving economic landscape, the NAICS undergoes a planned review every five years.
The Collaborative Origins of NAICS
The NAICS represents the combined efforts of Instituto Nacional de Estadistica y Geografia in Mexico, Statistics Canada, and the United States Office of Management and Budget. Originally introduced in 1997, it has undergone key revisions:
- 2002: Substantial updates to the construction, wholesale trade, retail trade, and information sectors.
- 2012: Slight reduction in the number of industries and modifications in sector classifications.
- 2022: Reduced the number of industries from 1,057 to 1,012, along with updated size standards affecting seven industry sectors.
A Deeper Dive into the NAICS Coding System
The NAICS uses a hierarchical six-digit coding system over a more flexible structure compared to the four-digit SIC codes. The system classifies all economic activities into 20 broad industry sectors, where 5 sectors produce goods and 15 sectors provide services. Companies receive a primary NAICS code, dictated by the revenue generated in the past year at a given location.
This classification system breaks down:
- 20 sector codes into 96 three-digit subsector codes,
- Into 308 four-digit industry codes,
- Narrowed to 689 five-digit industry codes,
- Finally into 1,012 six-digit NAICS codes.
Decoding a NAICS Code for Your Insights
Each NAICS code precisely indicates a company’s industry and operational specialization:
- The first two digits identify the main business sector.
- The third digit specifies the company’s subsector.
- The fourth digit highlights the company’s industry group.
- The fifth digit reflects the specific industry within that group.
- The sixth digit designates the company’s national industry. For example, soybean farming is represented by the NAICS code 111110:
- Sector: 11
- Subsector: 111
- Industry group: 1111
- Industry: 11111
- NAICS code: 111110
Understanding and leveraging the NAICS can elevate your economic analysis, making it a critical tool for business classifications and strategic insights.
Related Terms: Standard Industrial Classification, Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau, Industry Codes.
References
- U.S. Census Bureau. “Introduction to NAICS”.
- U.S. Census Bureau. “Frequently Asked Questions (FAQs), 12. How Can I Get a New NAICS Code Created for My Type of Business?”
- U.S. Census Bureau. “2002 NAICS Definitions”.
- U.S. Census Bureau. “2012 NAICS Definitions”.
- U.S. Census Bureau. “Frequently Asked Questions (FAQs), 14. How Does NAICS 2017 Differ from NAICS 2012?”
- U.S. Department of Labor, Occupational Safety and Health Administration. “Standard Industrial Classification (SIC) Manual”.
- “North American Industry Classification System, 2022”, Page 24.
- U.S. Census Bureau. “Frequently Asked Questions (FAQs), 5. What Is the NAICS Structure and How Many Digits Are in a NAICS Code?”
- “North American Industry Classification System, 2022”, Page 78.
