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North American Industry Classification System (NAICS)

A hierarchical system that groups and labels businesses according to production activity into sectors, sub-sectors, and individual industries

What is the North American Industry Classification System (NAICS)?

The North American Industry Classification System (NAICS) is a system that organizes and divides businesses into sectors, sub-sectors, and specific industries via a descriptive label and a grouping code of up to 6 digits.  

NAICS classifies by the similarity of production activity that an establishment carries out, regardless if it produces goods or sells services. Government agencies compile and compare data from establishments using this standard in order to gain insight into economic activities in the North American trading bloc.

The first version of NAICS was released in 1997, replacing the US Standard Industrial Classification System (SIC). The standard is reviewed every five years and was last updated in 2022[1]. The acronym used in Mexico is SCIAN (Sistema de Clasificación Industrial de América del Norte)[2]. Other areas, such as Europe, have NACE[3], which is a comparable classification standard.

North American Industry Classification System (NAICS)
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Key Highlights

  • The North American Industry Classification System (NAICS) is an industry classification system. It was developed jointly by USMCA member countries, i.e., the United States, Canada, and Mexico.
  • NAICS provides uniformity and comparability of economic data and statistics for countries in the North American trade bloc.
  • The first NAICS version was published in 1997 and revised every five years to ensure it stays relevant.

Background of NAICS

NAICS is a collaborative effort between government agencies of the three signatories of the United States-Mexico-Canada Agreement[4]. The below agencies maintain the NAICS.

  • Economic Classification Policy Committee at the United States Office of Management and Budget[5]
  • Statistics Canada[6]
  • Instituto Nacional de Estadística y Geografía (INEGI)[7] of Mexico.

The goal of these agencies was to create a classification system that would provide comparable statistics for industries operating in the three countries while accommodating localized industries in each of the three economies.

The NAICS standard was first published in 1997 to provide comparable statistics in service and manufacturing industries. In the same year, the US Office of Management and Budget announced its decision to adopt the new classification system, replacing the Standard Industry Classification System (SIC).

The original NAICS system covered over 150 new service industries compared to SIC. Revisions take place every five years, most recently in 2022, to ensure that statistics remain relevant and uniform and reflect the changes within the economies across North America.

What is a NAICS Code, and How Do I Find It?

The NAICS system uses a six-digit code that offers more flexibility than the four-digit SIC system it replaced. The NAICS system reflects both service and manufacturing industries, unlike the prior manufacturing-oriented SIC system.

The NAICS broadly classifies economic activities into 20 sectors, subdivided into subsectors, industry groups, and industries.  

2022 NAICS Unisted States Structure
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The NAICS broadly classifies economic activities into 20 sectors, subdivided into subsectors, industry groups, and industries.

NAICS Sector and Subsector

A NAICS label categorizes businesses using a standard six-digit code and a unique description of the industry it operates within.  

  • The first two digits identify one of twenty broad industrial sectors a business may operate within.  
  • The third digit narrows the sector to as many as 21 categories, depending on the sector’s diversity.  
  • The fourth digit further narrows the subsector into groupings of related industries. 
  • The fifth digit designates a company’s industry and is comparable for all users of NAICS.  
  • The sixth digit assigns the specific national industry that may be unique or local to that country.

Five-digit NAICS industries are similar across countries, allowing for easy comparability of data. About half (490 out of 1,012) of the six-digit national industries may be unique to the country, as exemplified by the US NAICS manual table. Detail on each industry may be found in the US NAICS manual. It is also searchable by keyword or the 2-6 digit codes via the websites maintained by the respective agencies located here.

Here are two examples of the NAICS label and codes.

NAICS Label and Codes

NAICS vs. SIC

Several differences stand out between the NAICS and the Standard Industry Classification System (SIC). The following are the key differences:

Comparability

Before 1997, the SIC system was used in the United States as the primary classification system for economic activities. It was not used in other USMCA member countries (Canada and Mexico) for their economic data tracking systems. 

Therefore, SIC was not an appropriate tool for comparing statistics between the countries in North America. The three governments created the NAICS explicitly to address economic and statistical uniformity, allowing analysts to compare data published by the members directly.  

Note SIC continues to be used for other purposes, such as by the Occupational Safety and Health Administration within the US Department of Labor[8].

Relevancy

The NAICS is revised every five years to reflect new market trends and economic endeavors, making it a relevant comparison tool. It is updated by adding, modifying, splitting, reclassifying, and combining industry categories to reflect recent market changes. This process ensures that the comparability of market data from the three countries remains relevant.

Historically, the SIC was revised once a decade, which is too long a duration in our ever-changing business environment. As it was last updated in 1987[9], it primarily focused on industries involved in goods rather than those involved in services.  

For example, many subsectors within the information sector are not found in SIC (as they did not exist at the time of the last update). Therefore, the NAICS is a more relevant classification system than the SIC since it is updated regularly to reflect market changes.

CFI is a leading provider of financial analysis programs, including the Commercial Banking & Credit Analyst (CBCA)™ certification for finance professionals looking to take their careers to the next level. 

To keep learning and developing your knowledge base, please explore the additional relevant CFI resources below:

Article Sources

  1. 2022
  2. SCIAN
  3. NACE
  4. United States-Mexico-Canada Agreement
  5. Economic Classification Policy Committee at the United States Office of Management and Budget
  6. Statistics Canada
  7. Instituto Nacional de Estadística y Geografía (INEGI)
  8. Occupational Safety and Health Administration
  9. SIC
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