Why Was NAICS Developed?

The North American Industry Classification System (NAICS) was developed to meet the needs of U.S. statistical agencies in collecting, analyzing, and presenting data related to establishments. Its purpose is to provide uniformity and comparability in describing the U.S. economy through statistical data. While NAICS is also used for administrative, regulatory, and taxation purposes, it is important to note that these nonstatistical uses did not influence its development or subsequent revisions.

In July 1994, the Office of Management and Budget (OMB) announced plans to create a new industry classification system in collaboration with Mexico's INEGI and Statistics Canada. This new system, NAICS, replaced the U.S. Standard Industrial Classification (SIC) system for statistical purposes.

The principles and concepts upon which NAICS was built were outlined in a Federal Register notice (59 FR 38092-38096) on July 26, 1994 and are as follows:

  • One of the key principles of NAICS is its production-oriented or supply-based conceptual framework. This means that businesses that employ similar production processes are grouped together in the classification system. By organizing industries based on their production methods, NAICS enables more accurate analysis and comparison of data.
  • NAICS also places special emphasis on the classification of new and emerging industries, service industries, and industries involved in the production of advanced technologies. These sectors play a crucial role in the modern economy and require specific attention for accurate statistical analysis.
  • Maintaining time series continuity is another important aspect of NAICS. While the system aims to preserve consistency over time, it also recognizes the need to adapt to changes in the economy and accommodate proposals from data users. In cases where the industry classification definitions of the United States, Canada, and Mexico are incompatible, adjustments are made to ensure a common industry system for all three North American countries.
  • Furthermore, NAICS strives for compatibility with the two-digit level of the International Standard Industrial Classification of All Economic Activities (ISIC) of the United Nations. This international alignment allows for better cross-country comparisons and facilitates global economic analysis.

    As of the current release, NAICS 2022, the system encompasses 1,012 unique final level industries. This comprehensive coverage ensures that a wide range of economic activities can be accurately classified and analyzed.