North American Industry Classification System - NAICS

What is the 'North American Industry Classification System - NAICS'?

The North American Industry Classification System (NAICS) is a business classification system developed through a partnership among the United States, Mexico and Canada. This classification system facilitates the comparison of statistics of all business activities across North America. Companies are classified and separated into industries that are defined by the same or similar production processes.

BREAKING DOWN 'North American Industry Classification System - NAICS'

The NAICS was established to replace and modernize the U.S. Standard Industrial Classification (SIC) system. The new system enables easier comparison of all countries in North America. To ensure that the NAICS continues to be relevant, a system review is planned every five years.

The History of the NAICS

The NAICS is a collaborative effort. The three parties responsible for the formation and continued maintenance of the NAICS are the Instituto Nacional de Estadistica y Geografia (INEGI) in Mexico, Statistics Canada and the United States Office of Management and Budget (OMB) through its Economic Classification Policy Committee (ECPC) and staffed by the Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS) and the Census Bureau.

The first version of the classification system was released in 1997. A revision in 2002 included substantial changes to the information sector. In 2012, there was a slight reduction in the number of industries in the system and made modifications to some of the system’s sector classifications. The latest revision, in 2017, created 21 new industries by reclassifying 29 existing industries. Changes in size standards were also included in the revision with nine industries affected.

NAICS Coding System

The NAICS classification system allows for more flexibility than the four-digit structure of the SIC. It uses a hierarchical six-digit coding system, classifying all economic activity into 20 different industry sectors. Five of these sectors are primarily those that produce goods while the remaining 15 sectors provide some type of service. Every company receives a primary NAICS code, indicating the company’s main line of business. This primary code is determined by the code definition that generates the largest revenue for a company at a specified location in the past year.

NAICS codes are narrowed from 20 sectors into 99 three-digit subsectors, further divided into 312 four-digit industry groups, subdivided into 713 five-digit industries and ultimately broken down into 1,066 six-digit U.S. industries.

Reading an NAICS Code

The first two digits of an NAICS code indicate the largest business sector in which a company operates. The third digit designates the company’s subsector and the fourth digit indicates the industry group to which the company belongs. The fifth digit of the code reflects the company’s particular industry of operation. The sixth and final digit designate the company’s specific national industry.