What is the North American Industry Classification System?

The North American Industry Classification System (NAICS) is a system that classifies certain industries based on specific parameters. The main purpose for the system is to provide a classification system for the U.S. Census Bureau, Bureau of Labor Statistics and other organizations that may borrow its parameters. The North American Industry Classification System was a product borne of cooperation with Canada and Mexico.

First unveiled in 2003, the North American Industry Classification System was devised to replace to the Standard Industrial Classification (SIC). SIC was devised in the first half of the 20th century and was considered outdated as the types of businesses changed over the years. This was especially apparent when the information economy began to take hold at the end of the 20th century. The number of major categories went from ten in the SIC to 20 in the North American Industry Classification System.

To understand the North American Industry Classification System, it is first necessary to understand the NAICS codes. These are broken down into a six digit number. The first two digits give the industry sector, while the next denotes the industry subsector. The fourth digit indicates the industry group. The fifth digit tells what the specific industry is. The last digit may indicate different things in each of the different countries and is the only digit that is not uniform across the board.

The 20 major divisions of NAICS include five in NAICS industry, or goods producing sections, and 15 in other NAICS business sections, which is specific to the services sector. Industrial classifications include: agriculture, forestry, fishing and hunting; mining; utilities; construction; and manufacturing. The services sector includes: wholesale trade, retail trade, transportation and warehousing, information, finance and insurance, real estate, professional services -- also including scientific and technical services -- management, administrative and support of waste management and remediation services, education, healthcare and social assistance, arts -- including entertainment and recreation -- hospitality, other services and public administration.

To help get industries used to the new classification system, a NAICS website has been created that includes a NAICS lookup. This is a database searchable by keywords, much like one may use for an internet search engine. NAICS lookups may also be performed by manuals specifically dedicated to the new standard, though the electronic version is likely to be more user friendly.

Though the categories have been set for quite some time, the NAICS is often reviewed to keep it current and reflective of the current business situation. Reviews happen every few years and the public is invited to give input into what improvements are needed. This helps keep the system from becoming outdated, as happened in the case of the SIC.