The Impact of Classification Changes on Time Series Continuity The Case of U.S. Monthly Retail Sales Presented to OECD Short-Term Economic Statistics Working Party By: Thomas E. Zabelsky Chief, Manufacturing and Construction Division June 26, 2006

2 Importance of Time Series Historical description of occurrence or phenomena Analyzing and interpreting economic conditions Basis for forecasting

3 Time Series Continuity Requires – Continuous series of observations Standard methods and definitions

4 Changing Industrial Classifications The dilemma - Keeps pace with evolving industrial and business activities, but Interrupts continuity of time series data

5 North American Industry Classification System (NAICS) Clean slate revision to earlier system First NAICS-based data published from 1997 Economic Census

6 Impact of NAICS on Industry Classifications 1,170 industries – 15% increase over SIC Industries -350 new -390 revised -422 substantially unchanged

7 Impact of NAICS on Retail Trade Old SIC division split into two NAIC sectors -retail trade -accommodations and food services Retail trade -15 industries; 10 new -eating and drinking places accounted for 10% in retail SIC -retail-wholesale boundary issues

8 Impact of NAICS on Retail Trade Data Source:1997 Economic Census Sales ($billions) NAICS2,460.9 SIC2,546.2 Change-85.3 Percent Change-3.3

9 Sources of Change on NAICS-Based Retail Data Source:1997 Economic Census Source of ChangeSales ($billions) Retail and Wholesale Boundary Change (move from wholesale) Food Services (eating and drinking) (move to Accommodation and Food Services) Other changes (manufacturing, etc.)-5.8 Net change-85.3

10 Restructuring Retail Time Series Data Restated 1992 Economic Census sales on a NAICS basis -assigned NAICS code to each employer establishment with an SIC that directly converted to NAICS (74%) -Matched employer establishments by ID and SIC to 1997 to obtain NAICS (6%) -Uncoded establishments of multi-establishment firms based on collective characteristic of all establishments (0.1%) -Random assignment (20%) -Exceptions

11 Restructuring Retail Time Series Data (cont.) Restated monthly SIC-based estimates from January 1992 – March 2001 Restated annual retail estimates from 1992 – 1998 Distributions based on SIC to NAICS links developed in 1997 census Adjusted the restated monthly NAICS estimates prior to March 2001 to account for new (NAICS) and old (SIC) based differences

12 Computing Benchmarked Estimates Restated annual estimates benchmarked to 1992 and 1997 Economic Censuses Minimized differences between the year-to-year changes of the restated annual estimates 1999 was computed using the published 1998 estimate by the ratio of the 1999 to 1998 estimates derived from the 1999 Annual Retail Trade Survey

13 Computing Benchmarked Estimates (cont.) Monthly Retail Sales For January 1992 through March 2001, restated estimates were changed in a manner that -constrained the sum of the 12 months to equal the benchmarked, restated annual estimate for 1992 through minimized the difference between the month- to-month changes of the restated monthly and benchmarked series Constant ratio applied to monthly estimates following December 1999