The North American Industry Classification System (NAICS), pronounced “Nakes”, is a standard utilized across North America (United States, Canada, and Mexico) for classifying business establishments according to their economic activities. Developed jointly by the statistical agencies of the three countries, NAICS facilitates a common framework for the collection, analysis, and dissemination of industrial statistics.
Definition and Purpose
The NAICS code is a six-digit hierarchical code that precisely identifies industries. Each digit in the code signifies a specific economic sector or subsector, enabling detailed insights into economic activities.
Key Features
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Six-Digit Code Structure:
- 1st & 2nd Digits: Represent the Sector.
- 3rd Digit: Designates the Subsector.
- 4th Digit: Identifies the Industry Group.
- 5th Digit: Indicates the NAICS Industry.
- 6th Digit: Specifies the National Industry.
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Flexibility: The NAICS system is designed to be adaptable to distinction and evolution in economic activities.
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Uniformity: It ensures uniformity and comparability of business data across North American countries.
Historical Context
NAICS replaced the Standard Industrial Classification (SIC) system in 1997 to better reflect new and emerging industries and economic activities. The transition was pivotal for enhancing clarity and alignment among the diverse market economies of North America.
Evolution
The NAICS system undergoes revisions approximately every five years to incorporate changes in the industrial structure. This ensures it remains relevant and accurately represents the business landscape.
Applicability
Business and Economic Analysis
- Governmental Agencies: Utilize NAICS codes for statistical purposes, policy-making, and regulation.
- Companies: Use NAICS codes for market research, business analysis, and financial reporting.
- Academics and Researchers: Employ NAICS codes for socioeconomic studies and economic forecasting.
Practical Example
A company manufacturing aircraft engines may have a NAICS code such as 336412:
- 33: Manufacturing Sector
- 336: Transportation Equipment Manufacturing Subsector
- 3364: Aerospace Product and Parts Manufacturing Industry Group
- 33641: Aerospace Product and Parts Manufacturing NAICS Industry
- 336412: Aircraft Engine and Engine Parts Manufacturing National Industry
Comparisons and Related Terms
- SIC Code: The predecessor to NAICS, was more limited in capturing new economic activities.
- NACE Code: The statistical classification system of economic activities used by the European Union, similar to NAICS but specific to Europe.
NAICS vs. SIC
| Aspect | NAICS | SIC |
|---|---|---|
| Digits | 6 | 4 |
| Scope | Comprehensive | Limited |
| Flexibility | High | Moderate |
| Region | North America | Primarily USA |
FAQs
What are NAICS codes used for?
How are NAICS codes assigned?
Can a company have more than one NAICS code?
How often is the NAICS updated?
References
- U.S. Census Bureau. NAICS - North American Industry Classification System. [Link to official NAICS webpage].
Summary
The North American Industry Classification System (NAICS) is an essential tool for classifying business establishments by their economic activities across the United States, Canada, and Mexico. Its comprehensive six-digit code structure supports nuanced statistical analysis, policy-making, and market research, reflecting the dynamic nature of North American industries. The NAICS continues to be an invaluable asset for businesses, governmental agencies, and researchers in understanding and navigating the economic landscape.
