Standard Industrial Classification (SIC) codes are four-digit numerical identifiers assigned by the U.S. government to categorize the industries in which companies operate based on their business activities. Introduced in 1937, SIC codes classify and analyze economic activity across various sectors and promote uniformity in the presentation of statistical data across numerous government agencies. While primarily a U.S.-based system, SIC codes have been adopted in various other regions as well.
Key Takeaways
- Categorization: SIC codes categorize industries, identifying the business activities companies are engaged in.
- Gradual Replacement: SIC codes have largely been replaced by six-digit North American Industry Classification System (NAICS) codes.
- Enduring Use: Despite being superseded, SIC codes are still used by several government agencies, including the SEC, and some companies today.
- Coding Structure: The first two digits indicate the primary business sector, while the remaining digits further refine the specific industry.
- Government Role: SIC codes help accurately assign the review of financial filings to appropriate regulatory divisions.
However, SIC codes were mostly replaced in 1997 by the North American Industry Classification System (NAICS), a system designed to standardize industry data collection and analysis between Canada, the United States, and Mexico, particularly following the North American Free Trade Agreement (NAFTA). Despite this, SIC codes are still actively used today to classify the industries companies belong to by aligning their business activities with similar companies.
Comprehending SIC Codes
SIC codes break down the economy into 11 major divisions:
- Agriculture, forestry, and fishing
- Mining
- Construction
- Manufacturing
- Transportation and public utilities
- Wholesale trade
- Retail trade
- Finance, insurance, real estate
- Services
- Public administration
- Nonclassifiable establishments
These divisions are further reduced to 83 two-digit major groups, then 416 three-digit industry groups, and finally into more than 1,000 four-digit industries. Each company receives a primary SIC code that points out its chief line of business. Here’s how the digits break down:
- First Two Digits: Major industry group
- Third Digit: Specific industry group
- Fourth Digit: Detailed industry
The Securities and Exchange Commission (SEC) is a major regulatory body that continues to use SIC codes, listed in company filings to indicate industry classification.
SIC Codes vs. NAICS Codes
The enduring use of SIC codes has made them resilient against complete replacement by the NAICS system. Businesses and organizations, due to long-term familiarity and established practices, often prefer SIC codes.
Although the U.S. government ceased updating SIC codes in 1987, private data organizations have continued refining and updating them. As a result, there exist over 10,000 SIC codes today, compared to 1,066 NAICS codes. Given the integration within the North American economy post-NAFTA, U.S. enterprises may now hold both a SIC code and a NAICS code.
Applications of SIC Codes
Business Applications
- Customer Identification: Companies use SIC codes to recognize existing and potential clients by industry.
- Tax Classification: SIC codes classify companies for tax purposes.
- Credit Evaluation: Banks and creditors utilize SIC codes to determine the industry when considering extending credit.
- Marketing Campaigns: SIC codes help professionals and businesses create targeted marketing efforts.
- Competition Analysis: Companies can identify competitors by searching for similar businesses via SIC codes.
- Government Contracts: Identifying appropriate government contracts.
Government Applications
- Data Organization: SIC codes help organize and standardize key economic data across federal and state agencies as well as private entities.
- Data Comparison: Facilitates comparison of data across disparate government agencies.
- Tax Classification: Used for tax purposes.
- SEC Filings: The SEC sorts company filings using SIC codes.
Locating Your SIC Code
To find an appropriate SIC code, consider the following resources:
- US Department of Labor: Provides an online tool for SIC code searches by keywords.
- NAICS Converter: Identify SIC codes corresponding to known NAICS codes.
- SEC Publications: Available in comprehensible PDF formats on their website.
Decoding SIC Numbers
The First Two Digits
These digits determine the business’s major sector group. The variable number of major groups define the industry to which the company belongs.
The Third Digit
This digit further describes a company by narrowing the business industry group, providing a better classification.
The Fourth Digit
The most specific identifier within a SIC code further refines the classification into a detailed business category.
Real-World Examples of SIC Codes
An example of the beta-digital usage of SIC codes can be observed with Apple Inc.’s SEC filings, which list its SIC code as 3571 (electronic computers). The breakdown is as follows:
- 35: Major industry group - Industrial and Commercial Machinery and Computer Equipment
- 7: Industry group - Computer and Office Equipment
- 1: Specific industry - Electronic computers
For the banking industry:
- Bank of America Corporation: SIC code 6021 (national commercial banks)
- State banks: SIC code 6022
- Life insurance companies: SIC code 6311
FAQs
How Do I Find My Company’s SIC Code?
Organizations like the U.S. Securities and Exchange Commission make available a standard SIC code list periodically refreshed by the Division of Corporation Finance.
Who Needs a SIC Code?
All companies inherently have an SIC code. Reporting companies especially must use SIC codes to correlate with SEC filings and meet national benchmarks.
What Is an Example Failure Mode Of a SIC Code?
SIC code 6500 might represent the real estate industry, with further classifications like 6510 for real estate operators, then narrowing further to non-residential buildings (6512) or apartment buildings (6513).
What Does SIC Code Stand For?
SIC stands for Standard Industrial Classification. This four-digit number identifies a concise description of the type of operations a company is engaged in.
Conclusion
SIC codes remain a fundamental tool for categorizing and comprehending business operations within various sectors of the economy. Given their enduring usage and rich history, they maintain significance for government regulation, business marketing, financial analysis, and beyond. While the emergence of NAICS codes offers a modern alternative, the legacy of SIC codes ensures their continued relevance in understanding industry classifications.
Related Terms: NAICS, industry analysis, business sector, SEC, economic data.
References
- Office of Statistical Standards. “History of the Standard Industrial Classification”, Page 1.
- U.K. Government. “Standard Industrial Classification of Economic Activities (SIC)”.
- Census Bureau. “North American Industry Classification System”.
- U.S. Securities and Exchange Commission. “Division of Corporation Finance: Standard Industrial Classification (SIC) Code List”.
- United States Department of Labor. “Standard Industrial Classification (SIC) System Search”.
- NAICS Association. “NAICS & SIC Crosswalks”.
