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The North American Industry Classification System

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1 The North American Industry Classification System
Understanding NAICS: The North American Industry Classification System NAICS LONGER VERSION of presentation to UCLA Anderson Forecast (panel on data issues in forecasting). Updated from June version to Sept to November. This version has additional 17 “sector” slides (11-20, 22-28), in case more “what is NAICS” is needed. Focus of short version: NAICS implementation, primarily for BLS employment programs (CES & 202) most commonly used in forecasting. Crowd of forecasters was NOT happy that California CES data were being reconstructed only back to 1991. This .ppt was built upon one done by Teri Morisi, the “sector” slides in particular are essentially hers. November 2002 Research and Analysis Bureau Nevada Dept. of Employment, Training, and Rehabilitation TM

2 Agenda NAICS What is NAICS and Why? Identify NAICS Sectors
Compare to SIC Industries Define NAICS Sectors and Industries New Auxiliary Treatment Implementation Schedule Historical Data Reconstruction: Covered Employment and Wages (ES-202) vs. CES CES Industry Detail for Publication

3 What is NAICS? New Industry Classification System to replace SIC codes
Concept: Group establishments by similar production processes Established in 1997 Developed in cooperation with our NAFTA partners, Canada and Mexico

4 Why Develop NAICS? The SIC was: Developed in the 1930s
Emphasized manufacturing, not growing service and high tech industries Revisions made little change to the original structure Last revised in 1987 First developed 70 years ago. The economy has changed. Growth has been in services and high tech industries Any revisions to SIC made little change to original structure.

5 What is the NAICS Structure?
20 sectors (21 counting Unclassified) 1,179 industries (US) more than under SIC system 6-digit numbering system 20 sectors, as compared to 10 Divisions in SIC. BLS publication guidelines will use a 21st sector for unclassifieds Roughly 1200 industries, about a 15% increase over the number of SICs.

6 How Does NAICS Differ from SIC?
Emphasizes new and emerging industries, high-technology industries, and service industries Provides greater industry detail (6-digit vs. 4-digit), especially in the services sectors Provides for comparability with Canada and Mexico Will be regularly maintained. Current plans are for revisions every 5 years: , 2007, etc. Old SIC: mixture of concepts -some by demand groupings, some by supply groupings (e.g. wood desks and steel desks in completely different SICs). Strive for comparability with the 2-digit level of the International Standard Industrial Classification of All Economic Activities, Revision 3 of the UN

7 How Does NAICS Differ from SIC?
Based on the “Production Function” concept - The “Production Function” concept means that businesses should be grouped together based on: Production of similar products or Use of similar production processes i.e., based on How, not What (produced, sold, serviced)….… usually Old SIC: mixture of concepts -some by demand groupings, some by supply groupings (e.g. wood desks and steel desks in completely different SICs). Strive for comparability with the 2-digit level of the International Standard Industrial Classification of All Economic Activities, Revision 3 of the UN

8 How Does NAICS Differ from SIC?
Examples of applying the “Production Function” concept include: SIC 49 included Combined Generation, Transmission, and Distribution of Gas NAICS separates Generation & Distribution of Gas (still in Utilities) from Transmission (to Transportation) because Transmission of Gas utilizes different processes than generation and distribution Old SIC: mixture of concepts -some by demand groupings, some by supply groupings (e.g. wood desks and steel desks in completely different SICs). Strive for comparability with the 2-digit level of the International Standard Industrial Classification of All Economic Activities, Revision 3 of the UN

9 How Does NAICS Differ from SIC?
Other Examples of “Production Function”: Wholesale Trade now distinguishes Agents and Brokers separately from Merchant Wholesalers Agents and Brokers are coded based on: HOW they sell (i.e., no inventory of merchandise) No longer based on WHAT they sell (as it did in SIC) Old SIC: mixture of concepts -some by demand groupings, some by supply groupings (e.g. wood desks and steel desks in completely different SICs). Strive for comparability with the 2-digit level of the International Standard Industrial Classification of All Economic Activities, Revision 3 of the UN

10 How Does NAICS Differ from SIC?
Other Examples of “Production Function”: Pawn Shops were included in SIC 5932, Used Merchandise Stores NAICS includes Pawn Shops in All Other Nondepository Credit Intermediation, (i.e., now included in consumer cash lending). NAICS identifies the true business activity of Pawn Shops is to provide cash, not the incidental sales of merchandise. Old SIC: mixture of concepts -some by demand groupings, some by supply groupings (e.g. wood desks and steel desks in completely different SICs). Strive for comparability with the 2-digit level of the International Standard Industrial Classification of All Economic Activities, Revision 3 of the UN

11 NAICS vs. SIC Structure SIC 12 Super Sectors combinations
2-digit Sector 3-digit Subsector 4-digit Industry Group 5-digit NAICS Industry 6-digit U.S. Industry SIC 1-digit Division 2-digit Major Group 3-digit Industry Group 4-digit Industry Sixth digit is country-specific, this allows some customization by individual nations.

12 NAICS SUPERSECTORS & SECTORS
"Total" 2 clusters 12 groups (Super Sectors) 21 sectors North American Goods-Producing Natural Resources and Mining 11 - Agriculture, Forestry, Fishing & Hunting Economy 21 - Mining Construction 23 - Construction Manufacturing 31/33 - Manufacturing Service-Producing Trade, Transportation & Utilities 42 - Wholesale Trade 44/45 - Retail Trade 48/49 - Transportation and Warehousing 22 - Utilities Information 51 - Information Financial Activities 52 - Finance and Insurance 53 - Real Estate and Rental and Leasing Professional & Business Services 54 - Professional, Scientific & Technical Services Latest change: CES will split Trade & TU ss into three for publication: whole, retail, TU. BLS variation 8/01: 1-Goods Production was split in to two Super Sectors: Construction, Manufacturing. (because it sounded too much like “goods producing” cluster name) 2-Added Nonclassified. 10/01 corrected 99 title to Unclassified 10 groups sometimes called “super sectors” and can be used if an agency can’t publish all 20+ sectors. Other versions existed in recent past; this was “blessed” by the ECPC on May as the official grouping recommendation (see Clarification memo #2) ECPC = Economic Classification Policy Committee, which was established by OMB in 1992 to work on a new system. 55 - Management of Companies & Enterprises 56 - Administrative & Support & Waste Mgmt & Remediation Services Education and Health Services 61 - Educational Services 62 - Health Care and Social Assistance Leisure and Hospitality 71 - Arts, Entertainment, and Recreation 72 - Accommodation and Food Services Other Services 81 - Other Services (except Public Admin) Public Administration 92 - Public Administration Unclassified 99 - Unclassified

13 NAICS vs. SIC Codes Agriculture, Forestry, Fishing, & Hunting
Mining Construction Manufacturing Wholesale Trade Retail Trade Transportation & Warehousing Utilities Information Logging moves in from Mfg, Vets, Landscaping move out Geophysical surveying out Mgt & Land Developers in Printing and Publishing out How they sell, not what Restaurants out Warehousing growth due to Auxiliaries Excludes Waste Disposal New Industry from Publishing, Communications

14 NAICS vs. SIC Codes Finance & Insurance Pawn Shops in
Real Estate and Rental & Leasing Professional, Scientific & Technical Services Management of Companies & Enterprises Administrative & Support and Waste Management Pawn Shops in Any type of rental in New industry from SIC Services New industry New industry from Business Svcs, plus Waste/Garbage

15 NAICS vs. SIC Codes Educational Services Expanded definitions
Health Care & Social Assistance Arts, Entertainment & Recreation Accommodation & Food Services Other Services Government Expanded definitions More specialized industries Includes Casinos Only New sector of Casino-Hotels Restaurants now here Fewer industries here now Tribal governments added in 2001

16 NAICS Sectors 11 Agriculture, Forestry, Fishing and Hunting: 21 Mining
Landscaping Services moved 21 Mining 22 Utilities: Waste Management moved 23 Construction Manufacturing 42 Wholesale Trade Retail Trade: Restaurants moved Transportation and Warehousing 51 Information: Combines SIC 48, Communications, with Publishers 52 Finance and Insurance

17 NAICS Sectors (cont’d)
53 Real Estate and Rental & Leasing: Rental/Leasing added 54 Professional, Scientific & Technical Services: From SIC 73, Business Services 55 Management of Companies and Enterprises: New industry 56 Administrative & Support and Waste Management & Remediation Services: From SIC 73, Business Services and SIC 49, Refuse Systems 61 Educational Services: From SIC 82, Education and SIC 73, Business Services 62 Health Care & Social Assistance New services sectors: -Professional, Scientific, Technical Services -Management of Companies -Administrative & Support & Waste Management & Remediation -Health Care & Social Assistance -Accommodation & Food Services (combined lodging places with eating/drinking places)

18 NAICS Sectors (cont’d)
71 Arts, Entertainment, & Recreation: From SIC 79, Amusement & Recreation 72 Accommodation & Food Services: From SIC 70, Hotels-Motels, and SIC 58, Eating & Drinking Places 81 Other Services (except public administration) 92 Public Administration 99 Unclassified New services sectors: -Professional, Scientific, Technical Services -Management of Companies -Administrative & Support & Waste Management & Remediation -Health Care & Social Assistance -Accommodation & Food Services (combined lodging places with eating/drinking places)

19 As with SIC, more digits = more detail
NAICS Structure As with SIC, more digits = more detail Code 72 721 7211 721110 721120 Title Accommodation & Food Service Accommodation Traveler Accommodation Hotels (except Casino Hotels) & Motels Casino Hotels

20 Major Improvements for Nevada:
NAICS Structure Major Improvements for Nevada: • Casino Hotels now separate from Hotels/Motels • Separate definitions for Full Service and Fast Food Restaurants • Corporate Headquarters / Regional Offices / Management a new industry

21 Major Improvements for Nevada:
NAICS Structure Major Improvements for Nevada: • Warehousing industry better defined due to change in treatment of Auxiliaries • Pawn shops move from Used Merchandise Stores to Finance ( All Other Nondepository Credit Intermeditation) Nine new Service Sectors created from SIC 70-89, Services

22 Improved ‘Business Service’ Definitions:
NAICS Structure Improved ‘Business Service’ Definitions: • Employee Leasing and Temporary Help Services now identified separately • Telephone Call Centers (Telemarketing) • Travel Arrangement and Reservation Services • Convention and Trade Show Organizers

23 Classify Auxiliaries by Activity
Auxiliaries will be classified by primary activity Under SIC, were classified according to the establishment they served Greatest impact in SIC-to-NAICS conversion: Manufacturing & Wholesale Trade Example of an auxiliary: Warehouse (separate location) for a manufacturing establishment Under NAICS, the warehouse will be classified in Warehousing and Storage, not Manufacturing or Wholesale Trade Under SIC, a warehouse for Amazon books is coded in book sales, while a warehouse for Clorox bleach company would be coded in chemical manufacturing. Under NAICS, both would be coded as warehouses.

24 Agriculture, Forestry, Fishing & Hunting
Changes to sector: Moved in Logging Moved out Veterinarians (to 54- Other Professional, Scientific, and Technical Services) Horticultural and Landscape Activities (to 56-Services to Buildings and Dwellings)

25 Construction Subsectors basically comparable to SIC major groups:
• Construction of Buildings - industry is based on whether construction is new or remodeling: New Single Family Housing Construction New Housing Operative Builders Residential Remodelers • Heavy and Civil Engineering Construction • Specialty Trade

26 Construction (cont’d)
Moved in Construction management services (from SIC 87, Management Services) Land Subdividers and Developers (from SIC 65, Real Estate) Construction Equipment Rental & Leasing (construction equipment with operator only)

27 Construction - Specialty Trade Contractors
We now collect data at the 6-digit level to differentiate residential vs. nonresidential Example: Residential Glass and Glazing Contractors Nonresidential Glass and Glazing Contractors This will be done by the BLS only and will not be in the manual The manual will show the 6-digit identical to the 5-digit. BLS did this to respond to requests from industry experts such as Harvards’ Joint Center for Housing studies per FR 4/20/00: 22 of 28 comments received in response to 2/25/99 FR were on Construction (and 3 on wholesale, other 3 out of scope). Many of 22 comments contradictory. Limited 3-country comparability. For most, comp. at 5-digit level. For specialty, comparable at 4-digit

28 Manufacturing Reorganized and restructured to achieve comparability with Canada and Mexico 474 industries, 173 revised industries, 79 new industries New Computer and Electronic Products Manufacturing Subsector Computer and Electronic Products Manufacturing combines several areas that were in different sectors under NAICS. It includes computer and parts manufacturing, software and CD reproduction, communications equipment, electronic components, connectors, semiconductors.

29 Manufacturing Moving Out: Other impact of conversion from SIC:
Moving In: Retail Bakeries Custom wood cabinets, furniture Dental Laboratories Tire Retreading Moving Out: Logging Publishing Other impact of conversion from SIC: Change in Auxiliary treatment

30 Redefinition of Wholesale/Retail
SIC based on class of customer NAICS based on method of selling Restaurants no longer included in retail

31 Wholesale Trade Three types of wholesalers: Merchant Wholesalers
Operate a warehouse/take possession of goods Also known as Drop Shippers, Import/Export Merchants, Distributors, Jobbers Sell goods on their own account

32 Wholesale Trade Three types of wholesalers: Merchant Wholesalers
Operate a warehouse/take possession of goods Also known as Drop Shippers, Import/Export Merchants, Distributors, Jobbers Business-to-Business Electronic Markets -Sell ONLY via internet, no brick & mortar location OR -Have brick & mortar location separate from internet location, and report data on both locations

33 Wholesale Trade Three types of wholesalers: Merchant Wholesalers
Operate a warehouse/take possession of goods Also known as Drop Shippers, Import/Export Merchants, Distributors, Jobbers Business-to-Business Electronic Markets (internet) Agents and Brokers Do not take possession of goods Also known as Manufacturers’ Representatives

34 Wholesale Trade Three types of wholesalers:
Merchant Wholesalers Operate a warehouse/take possession of goods Also known as Drop Shippers, Import/Export Merchants, Distributors, Jobbers Business-to-Business Electronic Markets (internet) Agents and Brokers Do not take possession of goods Also known as Manufacturers’ Representatives Merchant wholesalers sell goods on their own account, while the other two do not

35 Wholesale Trade NAICS based on method of selling:
Typically operate from a warehouse Provide little or no display of merchandise

36 Wholesale Trade NAICS based on method of selling:
Typically operate from a warehouse Provide little or no display of merchandise Do not normally advertise to general public

37 Wholesale Trade NAICS based on method of selling:
Typically operate from a warehouse Provide little or no display of merchandise Do not normally advertise to general public Normally denotes sales in large volumes, exceptions include durable nonconsumer goods (machinery)

38 Wholesale Trade NAICS based on method of selling:
Typically operate from a warehouse Provide little or no display of merchandise Do not normally advertise to general public Normally denotes sales in large volumes, exceptions include durable nonconsumer goods (machinery) Some goods always in Wholesale include: Farm machinery, Medium & Heavy duty Trucks, Industrial Machinery

39 Retail Trade New Industries Discount Department Stores
Warehouse Clubs and Superstores Gasoline Stations with Convenience Stores Electronic Shopping

40 Retail Trade New Industries Moving Out: Discount Department Stores
Warehouse Clubs and Superstores Gasoline Stations with Convenience Stores Electronic Shopping Moving Out: Eating and Drinking Places (EMP= -70,000) Retail Bakeries

41 Transportation & Warehousing
Trucking no longer distinguished by whether or not storage is provided General Freight Trucking, Long Distance, Truckload General Freight Trucking, Long-Distance, Less Than Truckload No distinction between land and air couriers Waste collection and travel agencies move to Admin/Support and Waste Management & Remediation Services

42 Utilities Combination utilities no longer exist (provide gas and electric or other services) Examples of new electric power industries Fossil Fuel Electric Power Nuclear Electric Power Moved out Refuse systems (garbage collection) moves to: Administrative & Support, Waste Management, & Remediation Services

43 Information Sector New Industries: - Cellular and other Wireless Telecommunications - Telecommunications Resellers - Internet Publishing and Broadcasting - Internet Service Providers - Web Search Portals Rest created from: Manufacturing: Publishing TCPU: Broadcasting & Communications (Television, Radio, Satellite) Services: Motion Picture & Sound Recording Information Services & Data Processing Libraries Information slide only “sector” detail slide in the short version of this .ppt as example of sector that pulls pieces of industries from all over. Point out that this gives a hint that there will be breaks in time series.

44 Restructuring of Finance Industries
Recognizes rapid change and deregulation Recognizes differences in countries’ financial industries structures Agreement with Mexico at 3- and 4-digit level Agreement with Canada at 5-digit level New industries include: Credit Card Issuing Financial transactions Processing, Reserve and Clearinghouse Activities Investment Banking and Securities Dealing

45 Reorganization of Old “Services” Division
1987 SIC - Services NAICS Real Estate and Rental and Leasing Professional, Scientific, & Technical Services Administrative and Support; Waste Management and Remediation Services Educational Services Health Care and Social Assistance Arts, Entertainment and Recreation Accommodation and Food Services Other Services (except Public Admin)

46 Professional, Scientific, & Technical Services
Grouped by expertise and training of service provider 28 new industries Offices of CPAs Interior Design Services Environmental Consulting Marketing Research & Opinion Polling

47 Administrative & Support and Waste Management & Remediation
Industries that support businesses 29 new industries Professional Employer Organizations Convention & Visitors Bureaus Repossession Services Hazardous Waste Collection

48 Health Care and Social Assistance
27 new industries not found under the SIC HMO Medical Centers Diagnostic Imaging Centers Blood and Organ Banks Residential Mental Health and Substance Abuse Facilities Continuing Care Retirement Facilities

49 Arts, Entertainment, and Recreation
Comparable to SIC 79, Recreation Includes Casinos only (not Casino-Hotels) and Slot Route Operators Also includes: Independent Writers, Musicians Golf Courses Amusement Parks Museums Gymansiums

50 Accommodation and Food Services
New lodging industries Casino Hotels Bed-and-Breakfast Inns New eating place industries Full-Service Restaurants Limited-Service Restaurants Cafeterias Food Service Contractors

51 Public Administration
Tribal government added in 2001 Note: A governmental and a private unit will have the same NAICS code if they perform the same activity - Air Traffic Control is

52 NAICS 2002 Industries impacted by NAICS 2002: Next revision: 2007
Construction International comparability at fifth digit, and (BLS only) residential/nonresidential distinction at sixth digit Wholesale Trade Department Stores Electronic shopping and auctions Information Next revision: 2007 Complete restructuring of “distribution network” industries: Wholesale, Retail, Transportation and Warehousing

53 Implementation Timing Across Agencies
Phase in by statistical agencies Completion of implementation by 2005

54 NAICS Implementation Schedule
U.S. Statistical Agencies Internal Revenue Service Census Bureau Bureau of Economic Analysis Bureau of Labor Statistics Tax Year 1998 IRS isn’t really a stat agency but included them to show an early adopter. BLS range is a year later than originally planned; once 2002 version specs were out, it made more sense to wait a year and just go with that rather than publish, then break series AGAIN in one year. BLS is “slow” relative to others primarily due to the lengthy process to refile in ES-202, covered in a bit.

55 Covered Employment & Wages (ES-202)
ES-202 is cornerstone employment program Universe for virtually all BLS programs Very detailed coverage: - all employers in NV covered by UI laws - by ownership/county/6-digit SIC Codes continually verified on a three-year cycle Historical firm-level data back to 1990: Sector levels must be computed Not yet validated by NV staff 202 covers all establishments covered by state Unemployment Insurance laws, which is about 99% of all establishments, period. Standard contract required response rate for refile in a year is for states to get at least 75%. During the NAICS refiling years, states were given a little extra money and asked to hit at least 90%. It was a lot of work.

56 Covered Employment & Wages (ES-202)
Data Availability: First Qtr 2002 data by NAICS and SIC Second Qtr 2002 data by NAICS only Quarterly publication of data now required, beginning with Second Qtr 2002 data (via website) Refile load in 2001 was approximately 1/4 of the universe. Dual coding of SIC will continue for a year because a number of BLS programs will still be using it. Last qtr will be Reconstruction: Confidentiality is sacred, so take no chances. States can opt to reconstruct but we recommend against it. California plans to follow BLS’ lead in terms of publication (what & when).

57 Current Employment Statistics (CES)
Decreased risk of confidentiality disclosure with higher level of aggregation for publication Data for all 20 sectors will not be available for all state & area series Minimum publication will be “Expanded” Super Sector (Wholesale, Retail, Transportation & Utilities pub. separately) CES is designed to be a time series while 202 is not. CES smoothes over the bumps & drops that occur in the administrative 202 program. Publication: will probably use the (expanded) super sector approach for the smallest areas. Expanded super sector=trade & TU split in to three: whole, retail, TU

58 Current Employment Statistics (CES)
Maintain continuity at “Total Nonfarm” level Retain logging, despite reclassification to agriculture Drop animal production support (part of SIC 075) Publication by BLS and states Two-year benchmark from January through December State & Area: March National: June 2003 Logging will be kept, but in Natural Resources & Mining sector, not Manufacturing The part of 075 "animal services except veterinary" that goes to "support activities for animal production" (NAICS ) will be out of scope. Initial tabs indicate that about 69% of SIC 0751 and 33% of SIC 0752 will be out of scope. In 1999, this involved about 22,500 workers nationwide The reconstructed data will be released at the same time as the regular two year’s worth ( ) of bmk data.

59 Current Employment Statistics (CES)
Time series reconstruction: State & Area current for Total Nonfarm for All Employee series Validated and corrected by NV staff NO Hours & Earnings reconstruction, H&E will start as of January 2001 National (Employment and H&E) for “Super Sector” minimum for detail At different times, it was thought that states could opt to go back to only 1991 instead of California will go back to 90 for super sectors. Methods By firm Use LDB records back to 1991, firms dead prior to NAICS code would be assigned one, would NOT pick up economic or NECC, AE only. By ratio Could do H&E using weighted averages, distortions grow the further back you go (emerging industries)

60 Breaks in Time Series - CES
Expect LOTS of breaks in series Effect on series depends upon level of aggregation CES Preliminary Research: 4-digit SIC level 75% will convert directly 3-digit SIC level 50% will convert 2-digit SIC level 25% will convert The 75% number is actually a Census estimate, not CES. 4-digit level CES data aren’t common, so an estimate covering all 4-digits probably won’t be made by CES folks. 2/15/02: dropped this last (dated) bullet: Timeline for breaks evaluation for State & Area data 2001 July - preliminary assessment January - finalize breaks ratios

61 More information http://www.census.gov/epcd/www/naics.html
Link in left frame for clarification memos is labeled “Issues & concepts” and is just out of sight on this screenprint. Clarification memos at:

62 SUMMARY NAICS NAICS is HERE NAICS offers 20 industry sectors
NAICS offers new industries: - Information - Professional/Scientific/Technical Svcs - Management of Companies - Administrative & Support/Waste Mgt - Accommodation & Food Services and more detail

63 SUMMARY NAICS New NAICS terminology: - Super Sectors (industry groups)
- Sectors (2-digit) - Industries (6-digit) New Auxiliary Treatment affects employment levels (ex: warehousing) Covered Employment and Wage (ES-202) data available now by NAICS Monthly Current Employment Statistics (CES) by NAICS with Jan data

64 NAICS SUMMARY Historical data available for Current Employment Statistics (CES) by NAICS from Jan. 1990

65 The learning curve for NAICS is slow……
CONCLUSION NAICS The learning curve for NAICS is slow…… and sometimes painful Be patient Good Luck


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