NAICS focuses on new and advanced technologies and service industries. It identifies more industries that contribute to today’s economy, especially in the services sector. Of the 358 new industries identified in NAICS, 250 are services-producing industries. Nine new service sectors, including the newly defined Information sector, describe the non-goods producing industries.

NAICS provides for comparable statistics among the North American countries. The SIC did not. Development of the system in cooperation with Statistics Canada and INEGI will allow analysts to measure the effects of NAFTA and assure that statistics from all three countries are comparable.

NAICS is constructed on a production-oriented conceptual framework. Businesses that use similar production processes to produce a good or service are grouped together. This single conceptual framework ensures that the classification system will produce data for improved analysis of input/output patterns, productivity, unit labor costs, and industrial performance. There was no consistent conceptual framework for the SIC.

NAICS is adaptable. NAICS codes will be reviewed and updated on a regular five-year cycle by the three sponsoring countries rather than the irregular 10-15 year cycle of the SIC.

NAICS is a six-digit system that provides for comparability among the three countries at the five-digit level in most cases. The SIC was a four-digit system that was not linked in any way to the systems of Canada and Mexico. A 6-digit system was adopted to provide for country-specific flexibility. The NAICS agreements with Canada and Mexico permit all three countries to create additional industries below the five digits to recognize important national industries. These are the six digit U.S. industries.

The nomenclature of the groupings within the system is different in NAICS. NAICS calls the highest level of aggregation in the system a sector; the SIC referred to this grouping as a division.

How will NAICS affect the data I use?

The creation of nine new service sectors, and 250 new service industries will have a profound effect on statistics published by U.S. statistical agencies. NAICS reflects the enormous changes in technology and in the growth and diversification of services that have marked recent decades. NAICS-based information will provide to data users and policy makers a clearer picture of the structure and functioning of the economy and the services sector in particular as we move into the 21^st century.

Some of the important changes and innovations in NAICS for which data will be provided are as follows:

A new Information sector combines communications, publishing, motion picture and sound recording, and online services, recognizing the new information age. For the first time, government statistics will measure the size and impact of information-based industries on the U.S. economy. Twenty new industries mark this sector including software publishing, satellite telecommunications, paging, and cellular and other wireless telecommunications.

The distinction between Retail and Wholesale Trade is now based on how the establishment conducts its business rather than on the class of customer that it serves. Those businesses that operate from a store front, advertise to the general public, and provide retail-type services are considered retailers in NAICS regardless of whether they sell primarily to businesses or consumers. This new definition reflects the changing structure of retail trade.

Those businesses whose major input is human capital are grouped together in a new sector Professional, Scientific, and Technical Services. For the first time, data users will have information on such professional services as computer systems design, industrial design, and marketing consulting.

The number of industries recognized in the new Health and Social Assistance sector almost doubled from those recognized in the health industries in the SIC. HMO’s, blood and organ banks, and continuing care retirement facilities are just a few of the 27 new industries in this sector.

The new Finance and Insurance sector recognizes the important and dynamic changes occurring in the U.S. financial sector. Deregulation made the SIC system for this sector obsolete long ago.

A new Arts, Entertainment, and Recreation sector includes important new industries that reflect our changing lifestyles. Industries recognized for the first time in this sector include fitness and recreational sports centers, casinos, theater companies and dinner theaters, and skiing facilities.

In NAICS, each establishment will be classified according to its production characteristics. Therefore, the head offices of corporations will be included in a new industry called Management of Companies and Enterprises while the data processing offices and accounting offices (if separate locations) of corporations will be included with the data processing and accounting industries, respectively. In the SIC, these establishments were included in the industry of the establishment for which it worked so that if it was primarily providing data processing services for a retail store of its own company, the support establishment was classified as a retailer.

The recognition of so many new activities in NAICS means that Census Bureau and other Government surveys will change. Some time series data will be lost. The Census Bureau is currently engaged in an extensive review of its current economic program and plans to restructure the program to reflect NAICS. At the same time, the Bureau would like to expand its current economic statistics program to include new data series that would improve the quality of Gross Domestic Product (GDP) estimates. Emphasis is being placed on the programs that cover service industries with a top priority being the implementation of an Annual Information Survey. The Bureau also would like to expand its current services program to cover many of the 250 new service industries. However, neither the implementation of NAICS nor the expansion of the services data program can be done within current funding levels. The President’s Fiscal Year 1999 Budget for the Census Bureau addressed this problem by requesting additional funds to permit full implementation of NAICS and to add new surveys to address serious deficiencies in GDP source data.

The Bureau needs $4.3 million to implement NAICS in its current programs. These funds will cover finalizing content and coverage of all redesigned current surveys; updating the business register to include NAICS codes for 21 million business locations; redesigning all data processing and review systems to incorporate NAICS-based surveys; selecting new samples; beginning the creation of five years of time series data for the principal economic indicators published by the Bureau; and initiating outreach plans targeting data users and suppliers.

The GDP initiative targets expansion of data for the fast-growing, changing services area. A new Annual Information Survey is at the top of the priority list, along with expanded measures of service outputs and new quarterly profits data. State and local governments also provide services and the initiative will provide new quarterly measures of government investments, expenditures and outsourcing practices. An additional $2.6 million will provide annual coverage of construction industries and provide quarterly measures of business reconstruction and retrofitting expenditures that some analysts believe total nearly $17 billion annually.

Receipt of these funds is critical if the Census Bureau is to fully implement NAICS and provide better, more timely information on the dynamic services sector.

When Will I First See NAICS-Based Data?

The 1997 Economic Census will provide the first comprehensive look at the economy according to NAICS. In early 1999, a new Advance Report will show information on employment, payroll, and receipts at the NAICS subsector and industry group level. For the first time, data will be available on employment, payroll and revenue for establishments engaged in the creation and distribution of information, the NAICS Information sector. This report also will show the size and make-up of the professional, scientific, and technical services sector, and provide a clearer picture of the health care industry in the U.S.

After this advance report is released in January 1999, Census will begin publishing NAICS-based industry reports for manufacturing and construction and NAICS-based geographic reports for the service sector. Publication of these reports will continue throughout the year, with all of these reports scheduled for completion by the end of 1999. These reports, which will be easy to access through the Internet, will provide the first information on the 358 new industries identified in NAICS.

In March 2000, Census will release detailed tables that will show information on both a 6-digit NAICS basis and 4-digit SIC basis. This report will provide to data users information needed to link the statistics published on a NAICS and SIC basis.

1997 is the transition year for Census implementation of NAICS. The Economic Census will provide the detailed correspondence tables necessary to link the data from the two systems. This is important because beginning in 1998, the Census Bureau will begin to implement NAICS in its other programs. The 1998 Annual Survey of Manufactures and 1998 County Business Patterns survey will be published on a NAICS basis only.

Other annual programs, including all service related surveys such as the Service Annual Survey, Transportation Annual Survey, Annual Survey of Communications Services, and Annual Retail Trade, will move to a NAICS basis for calendar year 1999. However, data will be collected for both 1998 and 1999 to provide to data users NAICS-based statistics from 1997 (Economic Census) onward. This plan also provides to data users SIC-based information for both 1997 (Economic Census and annual surveys) and 1998 (original 1998 annual surveys).

Other Federal government statistical agencies also have set detailed time schedules for implementing NAICS. The Internal Revenue Service will code tax forms to a NAICS basis for

tax year 1998. The Bureau of Labor Statistics will begin implementing NAICS into its programs in 2000, completing their conversion in 2004 with the Producer Price Index.

These staggered implementation dates from the different agencies will affect users of more than one data source and users need to be prepared for this problem. The detailed tables linking the SIC and NAICS data available from the Economic Census will provide the best correspondence between the two data series.

The Time to Prepare for NAICS is Now

Do you use monthly, quarterly, or annual statistics about the economy from the Census Bureau? This might include such data as monthly retail sales or annual operating revenue of television broadcasters. If so, you need to remember these surveys will change because of NAICS. Even if you think your data series won’t be affected because you use statistical information published by your trade association or USA Today or The Wall Street Journal, it is more than likely the source data emanates from the Census Bureau or another Federal agency and NAICS will affect that information.

As mentioned earlier because of NAICS changes, the Census Bureau is conducting a needs based assessment of its current program covering service statistics and will release recommendations on program changes by early summer. The first priority in this redesign is providing for the needs of other Government agencies and policy makers responsible for such critical economic measures as GDP, productivity, and the national accounts. However, we also welcome your suggestions on the industries to be included in the new program and the kinds of data to be collected for these industries. NAICS affords us a unique opportunity to ensure that business and government alike have the data they need to make informed policy and business decisions. If you want to know more about the redesign process or have suggestions for changing the current program for service industries, contact the Census Bureau now by phone or e:mail or visit the NAICS web site.

The economy has been changing for the past twenty years and economic statistics are finally catching up. NAICS is forward looking and flexible, anticipating increased globalization and providing enhanced industry comparability among the NAFTA trading partners. NAICS recognizes the structural and technological changes occurring in the economies of the three North American countries and provides the means to measure these changes well into the next millennium. As Business Week in its December 29, 1997 issue said "The U.S. is getting data for a New Economy--and it’s about time."

NAICS Web Site: www.census.gov/naics  E-Mail Address: naics@census.gov