Implementing the North American Industry Classification System at BLS: This New Classification System Is a More Viable Way of Classifying Industries and Tracking New Businesses and Changes in Economic Activity; However, the Transition Period May Be Challenging to Both Data Collectors and Data Users. (Implementing NAICS at BLS)

Article excerpt

Recent years have brought many changes in the U.S. economy. The rapid development of telecommunications and the Internet are only two examples of an incredible continuing evolution and progressively changing business environment. Correspondingly, economists and statisticians are improving their tools for measuring the economy. One basic tool is the classification of businesses by industry. Since the 1930s, government statistical programs have published industry data based on the Standard Industrial Classification (SIC) system. Now, these government programs will provide industry statistics based on the North American Industry Classification System (NAICS). (1)

The SIC system, originally designed in the 1930s, has been revised and updated periodically to reflect changes in the U.S. economy. The last revision was in 1987 when a number of new industries such as computer and software stores, video tape rental stores, and plastic bottle manufacturers were added. (2) However, the SIC system still focuses on the manufacturing sector of the economy, and provides insufficient detail for the now dominant service sector. Newly developed industries in information services, health care delivery, and even high-tech manufacturing cannot be adequately studied under the SIC system because they are not separately identified at the industry level. Thus, a new system has been developed that captures the dynamism of the 21st century economy and changes as industry activity develops. The Office of Management and Budget (OMB) announced adoption of NAICS in 1997, (3) and in 2001, announced a revised NAICS for 2002. (4) This article discusses the changes to NAICS as reflected in the NAICS 2002 manual. It also profiles NAICS--discussing its structure, issues confronting data users and collectors, and the implementation schedule for programs at the Bureau of Labor Statistics. A companion article on pages 22-31 provides a first look at employment and wage data based on NAICS. (5)

The NAICS advantage

NAICS has many advantages over the SIC system. First, it includes new and emerging industries that did not exist when the SIC was developed. These new industries are reflective of the Internet and communications age and the businesses that support them, as well as the changing ways in how we work, shop, and play. New industries such as semiconductor and related device manufacturing, cellular and other wireless telecommunications, satellite telecommunications, and Internet publishing and broadcasting are important for understanding the effects of these industries on the future direction of our economy. Also, telemarketing bureaus and temporary help supply services reflect the changing way of organizing work. The effect of the aging population on the economy is shown in the new industry continuing care retirement communities. NAICS separates convenience stores and warehouse clubs into distinct industries, reflecting shifts in retailing strategies and the shopping habits of consumers. The addition of industries such as casinos, casino hotels, and bed and breakfast inns mirrors changes in how we spend leisure time and disposable income. Together, these and other new industries will track developments in the ever-changing economy.

Second, NAICS uses a unified concept to define industries. The former SIC system used a mixture of ways to categorize economic activity--some categories were based on demand groupings (that is, activities that were similar in the eyes of customers or users of the product or service); others were based more on supply groupings. Under NAICS, industries are classified on the basis of their production or supply function--establishments using similar raw material inputs, capital equipment, and labor are classified in the same industry. This approach creates more homogeneous categories that are better suited for economic analysis.

Third, NAICS is used by the United States, as well as by Canada and Mexico, thus giving a consistent tool for measuring and comparing the economies of these three partners in the North American Free Trade Agreement (NAFTA). …