What Does
North American Industrial Classification System Mean?
The North American Industrial Classification System (NAICS) is a standardized system that ensures economic statistics can be reliably compared across North America. It classifies companies into business sectors and industries based on similarities in their production processes.
The NAICS was jointly developed by the United States, Canada, and Mexico in 1997 as a modernized replacement for the U.S. Standard Industrial Classification (SIC) system.
The NAICS has become the standard used by federal agencies when collecting, analyzing, and publishing statistical data related to the business economy.
Safeopedia Explains North American Industrial Classification System
The North American Industrial Classification System was developed under the auspices of the Office of Management and Budget (OMB), one of the executive offices of the President of the United States, and formulated jointly by Statistics Canada, the United States’ Economic Classification Policy Committee (ECPC), and Mexico’s Instituto Nacional de Estadística y Geografía.
The NAICS Coding System
The NAICS classification system uses a hierarchical six-digit coding system that classifies all economic activity into 20 sectors (15 which are service-related and five that primarily produce goods). A code is assigned to each company based on the activity that generated the most revenue for them in the past year at a specific location.
Each of the digits in the code has a specified meaning:
- First two digits: The company’s largest business sector
- Third digit: The company’s sub-sector
- Fourth digit: The company’s industry group
- Fifth digit: The company’s specific industry of operation
- Sixth digit: The company’s specific national industry
For example, NAICS code 237130 represents the fact that the company is:
- 23: In the construction sector
- 237: Part of the heavy and civil engineering subsector
- 2371: In the utility system construction industry group
- 23713: Operating in the power and communication line and related constructions industry
- 237130: Part of the Canadian power and communication line and related construction industry
Revisions to the NAICS
The NAICS undergoes a review and revision every five years, starting with its first revision in 2002. This update enacted substantial changes related to the construction industry, wholesale and retail trade, and the information sector.
The 2012 revision reduced the number of industries classified in the system, with some changes to sector classifications as well.
The latest revision came into effect in 2022. This update was intended to address changes in the economy, specifically the grouping of economic activities based on digital platforms in the same classifications as their non-digital counterparts.
Other changes included the addition of new and emerging industries, clarification of certain industry definitions, and title changes and content revision for selected areas.