NORTH AMERICAN INDUSTRY CLASSIFICATION …

NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM

United States, 2017

EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF MANAGEMENT AND BUDGET

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Foreword

The Instituto Nacional de Estad?stica y Geograf?a (INEGI) of Mexico, Statistics Canada, and the United States Office of Management and Budget, through its Economic Classification Policy Committee, have jointly updated the system of classification of economic activities that makes the industrial statistics produced in the three countries comparable. The North American Industry Classification System (NAICS) revision for 2017 is scheduled to go into effect for reference year 2017 in Canada and the United States, and 2018 in Mexico. NAICS was originally developed to provide a consistent framework for the collection, analysis, and dissemination of industrial statistics used by government policy analysts, by academics and researchers, by the business community, and by the public. Revisions for 2017 were made to account for our rapidly changing economies.

Classifications serve as a lens through which to view the data they classify. NAICS is the first industry classification system that was developed in accordance with a single principle of aggregation, the principle that producing units that use similar production processes should be grouped together. NAICS also reflects, in a much more explicit way, the enormous changes in technology and in the growth and diversification of services that have marked recent decades. Though NAICS differs from other industry classification systems, the three countries continue to strive to create industries that do not cross two-digit boundaries of the United Nations' International Standard Industrial Classification of All Economic Activities (ISIC).

The actual classification reveals only the tip of the work carried out by dedicated staff from INEGI, Statistics Canada, and U.S. statistical agencies. It is through their efforts, painstaking analysis, and spirit of accommodation that NAICS has emerged as a harmonized international classification of economic activities in North America.

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Preface

The North American Industry Classification System (NAICS) represents a continuing cooperative effort among Statistics Canada, Mexico's Instituto Nacional de Estad?stica y Geograf?a (INEGI), and the Economic Classification Policy Committee (ECPC) of the United States, acting on behalf of the Office of Management and Budget, to create and maintain a common industry classification system. With its inception in 1997, NAICS replaced the existing classification of each country--the Standard Industrial Classification (1980) of Canada, the Mexican Classification of Activities and Products (1994), and the Standard Industrial Classification (1987) of the United States. Since 1997, the countries have collaborated in producing five-year revisions to NAICS in order to keep the classification system current with changes in economic activities.

The North American Industry Classification System is unique among industry classifications in that it is constructed within a single conceptual framework. Economic units that have similar production processes are classified in the same industry, and the lines drawn between industries demarcate, to the extent practicable, differences in production processes. This supply-based, or production-oriented, economic concept was adopted for NAICS because an industry classification system is a framework for collecting and publishing information on both inputs and outputs, for statistical uses that require that inputs and outputs be used together and be classified consistently. Examples of such uses include measuring productivity, unit labor costs, and the capital intensity of production, estimating employment-output relationships, constructing input-output tables, and other uses that imply the analysis of production relationships in the economy. The classification concept for NAICS leads to production of data that facilitate such analyses.

In the design of NAICS, attention was given to developing production-oriented classifications for (a) new and emerging industries, (b) service industries in general, and (c) industries engaged in the production of advanced technologies. These special emphases are embodied in the particular features of NAICS, discussed below. These same areas of special emphasis account for many of the differences between the structure of NAICS and the structures of industry classification systems in use elsewhere. NAICS provides enhanced industry comparability among the three North American Free Trade Agreement (NAFTA) trading partners, while also increasing compatibility with the twodigit level of the International Standard Industrial Classification (ISIC, Rev. 4) of the United Nations.

NAICS divides the economy into 20 sectors. Industries within these sectors are grouped according to the production criterion. A key feature of NAICS is the Information sector that groups industries that primarily create and disseminate a product subject to copyright. The NAICS Information sector brings together those activities that transform information into a commodity that is produced and distributed, and activities that provide the means for distributing those products, other than through traditional wholesale-retail distribution channels. Industries included in this sector are telecommunications; broadcasting; newspaper, book, and periodical publishing; motion picture and sound recording industries; libraries; and other information services.

Another feature of NAICS is a sector for Professional, Scientific, and Technical Services that comprises establishments engaged in activities where human capital is the major input. The industries within this sector are each defined by the expertise and training of the service provider. The sector includes such industries as offices of lawyers, engineering services, architectural services, advertising agencies, and interior design services.

A sector for Arts, Entertainment, and Recreation includes a wide range of establishments that

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operate facilities or provide services to meet varied cultural, entertainment, and recreational interests of their patrons.

Another key sector, Health Care and Social Assistance, recognizes the merging of the boundaries of health care and social assistance. The industries in this sector are arranged in an order that reflects the range and extent of health care and social assistance provided. Some important industries are family planning centers, outpatient mental health and substance abuse centers, and continuing care retirement communities.

In the Manufacturing sector, an important subsector, Computer and Electronic Product Manufacturing, brings together industries producing electronic products and their components. The manufacturers of computers, communications equipment, and semiconductors, for example, are grouped into the same subsector because of the inherent technological similarities of their production processes, and the likelihood that these technologies will continue to converge in the future. NAICS acknowledges the importance of these electronic industries, their rapid growth over the past several decades and the likelihood that these industries will, in the future, become even more important in the economies of the three North American countries.

This NAICS structure reflects the levels at which data comparability was agreed upon by the three countries' statistical agencies. The boundaries of all the sectors of NAICS are delineated. In most sectors, NAICS provides for comparability at the industry (five-digit) level. However, for one of the three subsectors in Mining, Quarrying, and Oil and Gas Extraction, one of the three industry groups in Utilities, one of the ten industry groups in Construction, two of the four subsectors in Finance and Insurance, one of the three industry groups in the Real Estate subsector, and two of the four subsectors in Other Services (except Public Administration), three-country comparability occurs either at the industry group (four-digit) or subsector (threedigit) level. For these sectors or subsectors, differences in the economies of the three countries prevent full comparability at the NAICS industry level. For Retail Trade, Wholesale Trade, and Public Administration, the three countries' statistical agencies have agreed, at this time, only on the boundaries of the sector (two-digit level). Below the agreed upon level of comparability, each country may add additional detailed industries, as necessary to meet national needs, provided that this additional detail aggregates to the NAICS level.

The United States has adopted the revised classification in their statistical programs for the reference year beginning in 2017.

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Acknowledgments

This 2017 revision of the North American Industry Classification System (NAICS) was an immense undertaking requiring the time, energy, creativity, and cooperation of numerous people and organizations throughout the three countries. The work that has been accomplished is a testament to the individual and collective willingness of many persons and organizations both inside and outside the government to contribute to the development of NAICS. Within the United States, NAICS was revised under the guidance of the Office of Management and Budget by the Economic Classification Policy Committee (ECPC). Members of the ECPC were Dennis Fixler and Edward T. Morgan, Bureau of Economic Analysis, U.S. Department of Commerce; William G. Bostic, Jr. (retired) and John B. Murphy (Chair), Bureau of the Census, U.S. Department of Commerce; David Talan, Bureau of Labor Statistics, U.S. Department of Labor; and ex officio, Paul Bugg (retired), Office of Management and Budget.

In addition to the parties listed above, OMB would like to acknowledge the dedicated staff of the Classification Development Branch at the Bureau of the Census. This staff was responsible for researching, summarizing, and making preliminary recommendations to the ECPC for comments received from the public on 2017 NAICS revisions; for preparing documents summarizing the ECPC position for use in negotiations with Canada and Mexico; and for preparing all of the manuscript files for the published manual. It was their hard work and dedication that resulted in this complete documentation of 2017 NAICS United States.

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