What is the North American Industry Classification System?
The North American Industry Classification System is a business classification system developed through a partnership between the United States, Mexico and Canada. This classification system facilitates the comparison of statistics of all business activities in North America. Companies are classified and separated into industries defined by identical or similar production processes.
Understanding the North American Industry Classification System (NAICS)
NAICS was created to replace and modernize the standard industrial classification system in the United States. The new system allows for easier comparison of all North American countries. To ensure that NAICS continues to be relevant, a system review is scheduled every five years.
The History of NAICS
NAICS is a collaborative effort. The three parties responsible for the formation and ongoing maintenance of NAICS are the Instituto Nacional de Estadistica y Geografia in Mexico, Statistics Canada and the United States Office of Management and Budget through its Economic Classification Policy Committee and endowed by the Bureau of Economic Analysis. , Bureau of Labor Statistics and Census Bureau.
The first version of the classification system was released in 1997. A revision in 2002 included substantial changes in the construction, wholesale, retail and information sectors. In 2020, there was a slight reduction in the number of industries in the system and changes were made to some industry classifications in the system. The last revision, which took place in 2020, reduced the number of industries from 1065 to 1057. Changes in size standards were also included in the revision with nine industries affected.
NAICS coding system
The NAICS classification system offers more flexibility than the four-digit structure of the SIC. It uses a six-digit hierarchical coding system, classifying all economic activity into 20 different industrial sectors. Five of these sectors are mainly those producing goods while the other 15 sectors provide some type of service. Each business receives a main NAICS code, indicating its main industry. This primary code is determined by the code definition that generates the most revenue for a business at a specified location in the past year.
NAICS codes are reduced from 20 sector codes to 99 three-digit sub-sector codes, divided into 312 four-digit industry codes, subdivided into 713 five-digit industry codes and finally broken down into 1066 industry codes. Six-digit NAICS.
Reading a NAICS code
The first two digits of a NAICS code indicate the largest commercial sector in which a business operates. The third digit indicates the subsector of the enterprise and the fourth digit indicates the industrial group to which the enterprise belongs. The fifth digit of the code reflects the specific industry of the business. The sixth and last figure indicates the specific national industry of the company. Soybean cultivation, for example, has the NAICS code 111110, which is divided into sector 11, subsector 111, industry group 1111, industry 11111, NAICS code 111110.