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. Is Argentina a developed country?

    Argentina is not a developed country. It has one of the strongest economies in South America or Central America and ranks ... Read Full Answer >>
  2. Is Brazil a developed country?

    Brazil is not a developed country. Though it has the largest economy in South America or Central America, Brazil is still ... Read Full Answer >>
  3. What is the difference between marginal utility and marginal value?

    Depending on the context, marginal utility and marginal value can describe the same thing. The key word for each is "marginal," ... Read Full Answer >>
  4. In economics, what is an index number?

    Economists often make comparisons between sets of data across time. For example, a macroeconomist might want to measure changes ... Read Full Answer >>
  5. What role does the agency problem play in the modern Health Care industry?

    Agency problems vary from health care system to health care system, and not all economists agree on the degree and desirability ... Read Full Answer >>
  6. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
Related Articles
  1. Economics

    Is a Recession Coming?

    In the space of a week, the VIX Index, a measure of market volatility, spiked from 13, suggesting extreme complacency, to over 50, evidencing total panic.
  2. Investing Basics

    Tuesday Intel: U.S. Stocks Continue Lower

    A summary of news that moved markets yesterday and what to expect today.
  3. Entrepreneurship

    The Unintended Consequences of Outsourcing

    The outsourcing of labor overseas is a natural result of globalization of world markets and the drive for businesses to cut costs in order to maximize profits.
  4. Economics

    A Look at Greece’s Messy Fiscal Policy

    Investigate the muddy fiscal policy, tax problems, and inability to institute austerity that created the Greek crises in 2010 and 2015.
  5. Economics

    The Top 9 Things to Know About Hillary Clinton's Economic View

    Find out where former secretary of state and Democratic presidential candidate Hillary Clinton stands on the economy, jobs, trade and education.
  6. Economics

    Is Argentina a Socialist Country?

    Find out why it does not really make sense to call Argentina a socialist country, even though the South American nation has many socialistic tendencies.
  7. Personal Finance

    Pros and Cons of Capitalist vs Socialist Economies

    Capitalism relies on the markets. Socialism, on government planning. Each system has its pros and cons.
  8. Economics

    How Does National Income Accounting Work?

    National income accounting is an economic term describing the system used by a country to gather data and determine aggregate economic activity.
  9. Economics

    Understanding Frictional Unemployment

    Frictional unemployment is one aspect of natural unemployment, which is unemployment caused by things other than an underperforming economy.
  10. Fundamental Analysis

    Explaining Linear Relationships

    A linear relationship describes the proportionality between an independent variable and a dependent variable.
RELATED TERMS
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s ...
  2. Surplus

    The amount of an asset or resource that exceeds the portion that ...
  3. Factor Market

    A marketplace for the services of a factor of production.
  4. Endowment Effect

    The endowment effect describes a circumstance in which an individual ...
  5. Freelance Economy

    A freelance economy revolves around hiring self-employed workers ...
  6. Peer-to-Peer (P2P) Service

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

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!