What is the difference between an industry and a sector?

By Chad Langager AAA
A:

The terms industry and sector are often used interchangeably to describe a group of companies that operate in the same segment of the economy or share a similar business type. Although the terms are commonly used interchangeably, they do, in fact, have slightly different meanings. This difference pertains to their scope; a sector refers to a large segment of the economy, while the term industry describes a much more specific group of companies or businesses.

A sector is one of a few general segments in the economy within which a large group of companies can be categorized. An economy can be broken down into about a dozen sectors, which can describe nearly all of the business activity in that economy. For example, the basic materials sector is the segment of the economy in which companies deal in the business of exploration, processing and selling the basic materials such as gold, silver or aluminum which are used by other sectors of the economy.

An industry, on the other hand, describes a much more specific grouping of companies with highly similar business activities. Essentially, industries are created by further breaking down sectors into more defined groupings. Each of the dozen or so sectors will have a varying number of industries, but it can be in the hundreds. For example, the financial sector can be broken down into industries such as asset management, life insurance and Northwest regional banks. The Northwest regional bank industry, which is part of the financial sector, will only contain companies that operate banks in the Northwestern states.

When breaking down the economy, the first groups are sectors which describe a general economic activity. Then all of the companies that fall into that sector are categorized further into industries where they are grouped only with companies with which they share very similar business activities. This is not the end, however. Industries can be further sub-categorized into various, more specific groupings.

It should be noted that you may find situations in which these two terms are reversed. However, the general idea remains: one breaks the economy down into a few general segments while the other further categorizes those into more specific business activities. In the stock market the generally accepted terminology cites a sector as a broad classification and an industry as a more specific one.

To learn more, check out the Industry Handbook, The Stages Of Industry Growth and Sector Rotation: The Essentials.

RELATED FAQS

  1. Can scarcity and surplus coexist together?

    Can surplus and scarcity exist at the same time? Many examples of redistributing wealth and corporate welfare take advantage ...
  2. What is the difference between macroeconomics and finance?

    Dive into the world of economics by learning the key differences between macroeconomics and finance. These ideas help investors ...
  3. Why is Keynesian economics sometimes called demand-side economics?

    Learn why Keynesian economics is sometimes called demand-side economics, and find out how government spending increases aggregate ...
  4. How does macroeconomics explain "stagflation"?

    Learn about stagflation: a macroeconomic term used to describe economic turmoil. It is a time of serious inflation, slow ...
RELATED TERMS
  1. Peer-to-Peer (P2P) Service

    A Peer-to-Peer, or P2P, Service is a decentralized platform whereby ...
  2. Tianjin, China

    A definition of Tianjin, China.
  3. Economic Justice

    Economic justice is a component of social justice. It's a set ...
  4. Hong Kong SAR, China

    Hong Kong is a financial and business center in China.
  5. Macau SAR, China

    Definition of Macau SAR, China
  6. Shenzhen SEZ, China

    A definition of Shenzhen SEZ, China.

You May Also Like

Related Articles
  1. Economics

    The Economic Fundamentals Of The Sharing ...

  2. Investing Basics

    Hong Kong Vs. China: Understand The ...

  3. Fundamental Analysis

    SIC Vs. NAIC -An Introduction To Industry ...

  4. Investing Basics

    Understanding Benchmark Oils: Brent ...

  5. Economics

    The World Bank's All-Important World ...

Trading Center