North American Industry Classification System (NAICS)

What Is the North American Industry Classification System?

The North American Industry Classification System (NAICS) is a business classification system developed through a partnership among the United States, Canada, and Mexico. This classification system works with the comparison of statistics of all business activities across North America. Companies are classified and isolated into industries that are defined by something similar or comparable production processes. This system ought not be mistaken for the National Association of Insurance Commissioners (NAIC) or the National Association of Investors Corp. (NAIC).

Understanding the North American Industry Classification System (NAICS)

The NAICS was laid out to supplant and modernize the U.S. Standard Industrial Classification system. The new system empowers simpler comparison of all countries in North America. To guarantee the NAICS keeps on being pertinent, there is an arranged system survey at regular intervals.

The History of the NAICS

The NAICS is a collaborative exertion. The three gatherings responsible for the formation and proceeded with maintenance of the 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, staffed by the Bureau of Economic Analysis, Bureau of Labor Statistics, and the Census Bureau.

The main rendition of the classification system was delivered in 1997. A modification in 2002 included substantial changes to the construction, wholesale trade, retail trade, and information sectors. In 2012, there was a slight decrease in the number of industries in the system and changes were made to a portion of the system's sector classifications. The most recent correction, which happened in 2017, decreased the number of industries from 1,065 to 1,057. Changes in size standards were additionally included in the modification, with six sectors of industries impacted.

NAICS Coding System

The NAICS classification system takes into consideration more flexibility than the four-digit structure of the SIC. It utilizes a hierarchical six-digit coding system, grouping all economic activity into 20 unique industry sectors. Five of these sectors are principally those that produce goods while the leftover 15 sectors provide a service of some sort. Each company gets a primary NAICS code, showing its fundamental line of business. This primary code is determined by the code definition that creates the biggest revenue for a company at a predefined location in the past year.

NAICS codes are restricted from 20 sector codes into 99 three-digit subsector codes, further divided into 311 four-digit industry codes, subdivided into 709 five-digit industry codes, and eventually broken down into 1,057 six-digit NAICS codes.

Perusing a NAICS Code

The initial two digits of a NAICS code show the biggest business sector in which a company works. The third digit designates the company's subsector, and the fourth digit demonstrates the industry group to which the company has a place. The fifth digit of the code mirrors the company's specific industry of operation. The 6th and last digit designates the company's specific national industry. Soybean cultivating, for instance, has the NAICS code 111110, which is broken down to sector 11, subsector 111, industry group 1111, industry 11111, NAICS code 111110.