TM

NAICS

Understanding NAICS:

The North American Industry Classification

System

November 2002

Research and Analysis Bureau

Nevada Dept. of Employment, Training, and Rehabilitation

Agenda• 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

NAICS

What is NAICS?

• Concept: Group establishments bysimilar production processes

• Established in 1997

• Developed in cooperation with our NAFTA partners, Canada and Mexico

• New Industry Classification System to replace SIC codes

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

20 sectors (21 counting Unclassified)

1,179 industries (US) 175 more than under SIC system

6-digit numbering system

What is the NAICS Structure?

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:

2002, 2007, etc.

How Does NAICS Differ from SIC?

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

Based on the “Production Function” concept -

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

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)

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.

NAICS vs. SIC Structure

NAICS

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

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 Trade44/45 - Retail Trade

48/49 - Transportation and Warehousing22 - Utilities

Information 51 - Information

Financial Activities 52 - Finance and Insurance53 - Real Estate and Rental and Leasing

Professional & Business Services54 - Professional, Scientific & Technical Services 55 - Management of Companies & Enterprises56 - Administrative & Support & Waste Mgmt & Remediation Services

Education and Health Services 61 - Educational Services62 - Health Care and Social Assistance

Leisure and Hospitality 71 - Arts, Entertainment, and Recreation72 - Accommodation and Food Services

Other Services 81 - Other Services (except Public Admin)

Public Administration 92 - Public Administration

Unclassified 99 - Unclassified

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

NAICS vs. SIC Codes• Finance & Insurance• 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

NAICS vs. SIC Codes• Educational Services• 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

11 Agriculture, Forestry, Fishing and Hunting:

Landscaping Services moved21 Mining22 Utilities: Waste Management moved23 Construction31-33 Manufacturing42 Wholesale Trade44-45 Retail Trade: Restaurants moved48-49 Transportation and Warehousing51 Information: Combines SIC 48,

Communications, with Publishers52 Finance and Insurance

NAICS Sectors

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 industry56 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

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 Administration99 Unclassified

NAICS Sectors (cont’d)

NAICS Structure

Code727217211721110

721120

TitleAccommodation & Food Service AccommodationTraveler AccommodationHotels (except Casino Hotels) & MotelsCasino Hotels

As with SIC, more digits = more detail

NAICS Structure

• Casino Hotels now separate from

Hotels/Motels

• Separate definitions for Full Service and Fast Food Restaurants

• Corporate Headquarters / Regional Offices / Management a new industry

Major Improvements for Nevada:

NAICS Structure

• Warehousing industry better defined due to change in treatment of Auxiliaries

• Pawn shops move from Used Merchandise Stores to Finance (522298-All Other Nondepository Credit Intermeditation)

• Nine new Service Sectors created from SIC 70-89, Services

Major Improvements for Nevada:

NAICS Structure

• Employee Leasing and Temporary Help Services now identified separately• Telephone Call Centers (Telemarketing) • Travel Arrangement and Reservation Services • Convention and Trade Show Organizers

Improved ‘Business Service’ Definitions:

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 amanufacturing establishment

Under NAICS, the warehouse will be classifiedin Warehousing and Storage, not Manufacturing or Wholesale Trade

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)

Construction

Subsectors basically comparable to SIC major groups:• Construction of Buildings - industry is based on whether construction is new orremodeling:

– New Single Family Housing Construction– New Housing Operative Builders– Residential Remodelers

• Heavy and Civil Engineering Construction

• Specialty Trade

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)

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

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

Manufacturing

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

Redefinition of Wholesale/Retail

• SIC based on class of customer

• NAICS based on method of selling

• Restaurants no longer included in retail

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

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

Wholesale Trade• Three types of wholesalers:

Merchant Wholesalers– Operate a warehouse/take possession of

goods– Also known as Drop Shippers, Import/Export

Merchants, Distributors, JobbersBusiness-to-Business Electronic Markets

(internet)Agents and Brokers

– Do not take possession of goods

– Also known as Manufacturers’ Representatives

Wholesale Trade• Three types of wholesalers:

Merchant Wholesalers– Operate a warehouse/take possession of goods– Also known as Drop Shippers, Import/Export

Merchants, Distributors, JobbersBusiness-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

Wholesale Trade

NAICS based on method of selling:• Typically operate from a warehouse• Provide little or no display of

merchandise

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

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)

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

Retail Trade

• New Industries– Discount Department Stores– Warehouse Clubs and Superstores– Gasoline Stations with Convenience

Stores– Electronic Shopping

Retail Trade

• New Industries– 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

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

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

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

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

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)

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

Administrative & Support and

Waste Management & Remediation

Industries that support businesses

29 new industries– Professional Employer Organizations– Convention & Visitors Bureaus– Repossession Services– Hazardous Waste Collection

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

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

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

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 488111

NAICS 2002

Industries impacted by NAICS 2002:- 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

Implementation Timing Across Agencies

• Phase in by statistical agencies

• Completion of implementation by 2005

NAICS Implementation Schedule

• Internal Revenue Service

• Census Bureau

• Bureau of Economic Analysis

• Bureau of Labor Statistics

Tax Year 1998

1999 - 2002

1999 - 2004

2002 - 2005

U.S. Statistical Agencies

Covered Employment & Wages (ES-202)

• 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

• ES-202 is cornerstone employment program

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)

Current Employment Statistics (CES)

• Decreased risk of confidentiality disclosurewith higher level of aggregation forpublication

• 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)

Current Employment Statistics (CES)

• Publication by BLS and states Two-year benchmark from January 2001 through December 2002

State & Area: March 2003 National: June 2003

• Maintain continuity at “Total Nonfarm” level Retain logging, despite reclassification to agriculture

Drop animal production support (part of SIC 075)

Current Employment Statistics (CES)

• State & Area– 1939 - current for Total Nonfarm– 1990 - 2000 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)

– 1939-2000 for “Super Sector”

– 1990-2000 minimum for detail

Time series reconstruction:

Breaks in Time Series - CES

• 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

• Expect LOTS of breaks in series

More information

http://www.census.gov/epcd/www/naics.html

Clarification memos at: http://www.census.gov/epcd/www/naicsdoc.htm#issues

SUMMARY• 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

NAICS

SUMMARY• 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. 2003 data

NAICS

SUMMARY• Historical data available for Current

Employment Statistics (CES) by NAICS from Jan. 1990

NAICS

CONCLUSION

The learning curve for NAICS is slow……

and sometimes painful• Be patient• Good Luck

NAICS