The Standard Industrial Classification (SIC) was originally developed in the 1930's to classify establishments by the type of activity in which they are primarily engaged and to promote the comparability of establishment data describing various facets of the U.S. economy.

The SIC covers the entire field of economic activities by defining industries in accordance with the composition and structure of the economy. Over the years, it was revised periodically to reflect the economy's changing industry composition and organization. The Office of Management and Budget (OMB) last updated the SIC in 1987.

In recent years, rapid changes in both the U.S. and world economies brought the SIC under increasing criticism. The 1991 International Conference on the Classification of Economic Activities provided a forum for exploring the issues and for considering new approaches to classifying economic activity. In July 1992, the OMB established the Economic Classification Policy Committee chaired by the Bureau of Economic Analysis, U.S. Department of Commerce, with representatives from the Bureau of the Census, U.S. Department of Commerce, and the Bureau of Labor Statistics, U.S. Department of Labor. The OMB charged the ECPC with conducting a "fresh slate" examination of economic classifications for statistical purposes and determining the desirability of developing a new industry classification system for the United States based on a single economic concept. A March 31, 1993, Federal Register notice (pp. 16990-17004) announced OMB's intention to revise the SIC for 1997, the establishment of the Economic Classification Policy Committee, and the process for revising the SIC.

The ECPC and Statistics Canada reviewed the existing structure of detailed "4-digit" industries in the 1987 U.S. SIC and the 1980 Canadian SIC for conformance to economic concepts.

NAICS Structure

NAICS industries are identified by a 6-digit code, in contrast to the 4-digit SIC code. The longer code accommodates the larger number of sectors and allows more flexibility in designating subsectors. It also provides for additional detail not necessarily appropriate for all three NAICS countries. The international NAICS agreement fixes only the first five digits of the code. The sixth digit, where used, identifies subdivisions of NAICS industries that accommodate user needs in individual countries. Thus, 6-digit U.S. codes may differ from counterparts in Canada or Mexico, but at the 5-digit level they are standardized.

The New Hierarchical Structure

The following are the 20 broad sectors (up from the 10 divisions of the SIC system):

Many of the new sectors reflect recognizable parts of SIC divisions, such as the Utilities and Transportation sectors, broken out from the SIC division Transportation, Communications, and Utilities. Similarly, the SIC division for Service Industries has been subdivided to form several new sectors, as shown in the chart below.

Other sectors represent combinations of pieces from more than one SIC division. The new Information sector includes major components from Transportation, Communications, and Utilities (broadcasting and telecommunications), Manufacturing (publishing), and Services Industries (software publishing, data processing, information services, motion picture and sound recording). The Accommodation and Foodservices sector puts together hotels and other lodging places from Service Industries and eating and drinking places from Retail Trade.

NAICS Sector to SIC Divisions

The chart below shows the NAICS sectors and the SIC divisions from which their primary components were derived. Text linked from the chart discusses the makeup of the new sectors in greater detail.

IMPORTANT CHANGES BY SECTOR

Manufacturing

The Manufacturing sector is reorganized and re-sequenced to achieve comparability with Canada and Mexico. Seventy-nine new industries are recognized and another 186 are revised. In all, there are 474 NAICS industries in manufacturing as compared with 459 in the 1987 SIC. The most significant change to manufacturing is the creation of the Computer and Electronic Product Manufacturing sub sector. This new sub sector brings together those establishments engaged in the production of computers, computer peripherals, communications equipment, similar electronic products, and the components for such products. The sub sector was created because of the economic significance these industries have obtained, because their rapid growth suggests that the products of these industries will become even more important to the economies of the North American countries, and because the production processes of the establishments in these industries are fundamentally different from the production processes for other machinery and equipment.

A number of important activities have been moved out of manufacturing while other activities have moved in. Publishing has moved to the new Information sector and logging to Agriculture, Forestry, and Fishing. Coming into manufacturing are bakeries that bake on the premise and custom manufacturing.

Retail and Wholesale Trade

NAICS redefines the boundaries between Retail and Wholesale Trade. The new NAICS definition emphasizes what the establishment does, rather than to whom it sells. Retailers are defined as those establishments that sell merchandise, generally without transformation, and attract customers using methods such as advertising, point-of-sale location, and display of merchandise. A store retailer has a selling place open to the public; merchandise on display or available through sales clerks; facilities for making cash or credit card transactions; and services provided to retail customers.

Wholesale establishments, on the other hand, are primarily engaged in selling or arranging the purchase or sale of: (a) goods for resale, (b) capital or durable non-consumer goods, and (c) raw and intermediate materials and supplies used in production. Wholesalers normally operate from a warehouse or office and are characterized by having little or no display of merchandise. In addition, neither the design nor the location of the premises is intended to solicit walk-in traffic. Wholesalers also do not normally use advertising directed to the general public.

The 1987 SIC defined retailers as those establishments that sold primarily to consumers while wholesalers were those establishments that sold primarily to business customers. The distinction between the boundaries of the two SIC divisions was based on class of customer rather than the selling characteristics of the establishment.  It is estimated that seven percent of computer wholesalers; 22 percent of office supply wholesalers; 35 percent of farm supply wholesalers; and 57 percent of petroleum bulk stations will move to retail.

Another major change to the retail trade sector is the removal of restaurants from retail trade. Restaurants are combined with accommodations to form a new sector in NAICS, Accommodation and Foodservices. Restaurants accounted for about 10 percent of retail trade as defined by the 1987 SIC.

Information

Perhaps the most important change in NAICS is the recognition of a new Information sector. This new sector includes those establishments that create, disseminate, or provide the means to distribute information. It also includes establishments that provide data processing services. Industries included in this new sector are newspaper, book, and periodical publishers, previously included in the manufacturing sector in the SIC; software publishers, previously included in services; broadcasting and telecommunications producers and distributors, previously included with utilities and transportation; and motion picture and sound recording industries, information services, and data processing services, previously included in services.

There are 34 industries included in this new sub sector, 20 of which are new. Some of the new industries include paging, cellular and other wireless telecommunications, and satellite telecommunications.

Finance and Insurance

This new sector recognizes the important and dynamic changes occurring in the U.S. financial sector.   Real estate--part of this grouping in the SIC--was moved to a new sector called Real Estate and Rental and Leasing. Deregulation and the constantly changing structure of financial industries made it difficult to construct a system among the three countries. Therefore, agreement with Mexico for this sector reaches only to the 3-digit level (sub sector) for finance and 4-digit level (industry group) for insurance. However, Canada and the United States reached agreement down to the 5-digit level.

Real Estate and Rental and Leasing

This sector includes industries from Services; Finance, Insurance, and Real Estate; and Transportation, Communications, and Public Utilities

Professional, Scientific, and Technical Services

Those businesses whose major input is human capital are grouped together in this new sector. The industries within this sector are each defined by the expertise and training of the service provider. The sector includes such industries as offices of lawyers, engineering services, architectural services, advertising services, veterinary services, advertising services, and interior design services. Forty-seven industries are grouped in this sector, 28 of which are new.

Administrative and Support; Waste Management and Remediation Services

This sector includes industries from Services; Transportation, Communications, and Utilities; Construction; and Agriculture, Forestry, and Fishing

Educational Services

Health and Social Assistance

This new sector recognizes that it is sometimes difficult to distinguish between the boundaries of health care and social assistance; therefore, NAICS groups these industries together in a new Health and Social Assistance sector. The industries are grouped in order from those providing the most intensive type of health care to those providing minimal health care with social assistance to those providing only social assistance.

There are 39 industries in this new sector, 27 of which are new. Some of the new industries include HMO Medical Centers, Family Planning Centers, Blood and Organ Banks, Diagnostic Imaging Centers, Continuing Care Retirement Communities, and Community Food Services.   The sector also includes ambulance services transferred from Transportation, Communications, and Public Utilities.

Accommodation and Food Services

This sector includes lodging from Services and food services from Retail Trade

Arts, Entertainment, and Recreation

Those businesses engaged in meeting the cultural, entertainment, and recreational interests of their patrons are grouped together in this new sector.   Casinos and other gambling businesses are recognized for the first time in NAICS, as are historical sites and sports teams and clubs. In all, there are 25 industries in the sector, most of which are new -- 19 in all.  While most of the industries in the sector come from the SIC Services division, others come from Retail Trade and Finance, Insurance, and Real Estate.

Other Services

This sector includes industries from Services; Agriculture, Forestry, and Fishing; Manufacturing; and Finance, Insurance, and Real Estate

Auxiliary Establishments

Auxiliary establishments are those establishments that primarily produce support services for other establishments of the enterprise. Generally, these support services are not intended for use outside of the enterprise. In NAICS, these establishments are classified according to the establishment's primary activity.  For example, an establishment providing data processing services for an enterprise is classified in NAICS 51421, Data Processing Services. An establishment that is the head office of an enterprise is classified in the new NAICS industry 551113, Corporate, Subsidiary, and Regional Managing Offices. In the 1987 SIC, each of these establishments was classified according to the primary activity of the establishment for which the support activity was performed. In the above examples, if those support units primarily served an automobile making plant, the support establishment was classified in automobile manufacturing.

The SIC, however, treated the production of goods for other establishments of the same enterprise differently. If a manufacturing establishment produced goods for use within the enterprise, the manufacturing establishment was classified according to its primary activity, not the primary activity of the establishment it served. This different treatment of service producing versus manufacturing auxiliary establishments was inconsistent and NAICS recognized this inconsistency. NAICS classifies auxiliary establishments based on what they do, not on whom they serve. The production oriented concept of NAICS mandated this change.

This change will result in significant shifts in employment data. In 1992, Census data showed over 1,000,000 auxiliary employees assigned to manufacturing and over 840,000 auxiliary employees assigned to retail trade. These employees are most likely  to move to either the Management of Companies and Enterprises sector; the Warehousing and Storage sub sector; the Computer Systems Design and Related Services sub sector; the Accounting, Tax Preparation, Bookkeeping and Payroll Services sub sector; or some other services-related sub sector. For the 1997 Economic Census, these auxiliary establishments will be dual coded by primary activity and by whom they serve. The data will be shown separately to provide data users with the necessary links to prior information.

The principles upon which the three countries proposed to develop NAICS are as follows:

1.  NAICS will be erected on a production-oriented, or supply-based, conceptual framework. This means that producing units that use identical or similar production processes will be grouped together in NAICS.

2.  The system will give special attention to developing production-oriented classifications for (a) new and emerging industries, (b) service industries in general, and (c) industries engaged in the production of advanced technologies.

3.  Time series continuity will be maintained to the extent possible. However, changes in the economy and proposals from data users must be considered. In addition, adjustments will be required for sectors where Canada, Mexico, and the United States presently have incompatible industry classification definitions in order to produce a common industry system for all three North American countries.

4.  The system will strive for compatibility with the 2-digit level of the International Standard Industrial Classification of All Economic Activities (ISIC, Rev. 3) of the United Nations.

Three Country Comparability

NAICS 2002 has a five-digit classification structure, with a six-digit for national industries. With some important exceptions, it provides a set of standard 5-digit industries that describe the industrial structure and composition of the Canadian, United States and Mexican economies at selected levels of aggregation where agreement occurred among the three countries on a compatible classification. Below the agreed-upon level of compatibility each country has added additional detailed six-digit industries, as necessary to meet national needs, provided that this additional detail aggregates to the NAICS level. Exceptions to the rule of five-digit industry level NAICS compatibility are shown below in a table.

Exceptions to the rule of five-digit industry level NAICS 2002 comparability

* Sub sector 526 in Finance is a NAICS Canada sub sector only .Add your text here!

Separate agreements providing for detailed industry comparability between Canada and the United States were reached for the utilities; retail trade; and finance and insurance sectors.

Differences in NAICS 2002 Manuals

Classes below the NAICS level are specific to each country and do not show up in the other countries' NAICS Manuals.

Difference between these codes in NAICS Canada, NAICS US, and SCIAN Mexico reflect:

1. differences in relative size which allows for more national industry detail in selected sectors (e.g., Manufacturing in the United States)

2. classes which are analytically important to one country for cultural, economic or institutional reasons (e.g., Cultural Industries in Canada)

3. detail each country has chosen to fill in the classification below the NAICS level.

4. limited time and resources available for developing NAICS.

In many cases, the national detail in the NAICS Canada and NAICS US Manuals are similar. Note that residual 6-digit classes can end in either and 8 or a 9. Within each sector, the country with the larger number of 6-digit classes identified their residual classes with a code ending in 9. As a rule, the 6-digit classes of the three countries carry the same code when they refer to similar industries and different codes when they refer to different industries. However, in rare instances, when the combined number of Canadian and US 6-digit classes exceeded 10, this resulted in an identical code for classes with a different content. There are only 3 such cases, viz:

In the published paper version (12-501-XPE), comparable NAICS classes are identified by using the following superscripts: