NAICS (North American Industry Classification System) is a business classification system used by federal statistical agencies to classify businesses for the purpose of collecting, analyzing, and publishing statistics related to the US business economy.
NAICS was developed and adopted in 1997 under the auspices of the United States Office of Management and Budget and was intended to replace the Standard Industrial Classification (SIC) system. The U.S. Economic Classification Policy Committee (ECPC), Statistics Canada, and Mexico’s Instituto Nacional de Estadistica y Geografia participated in the development to ensure a high level of comparability business statistics between North American countries.
During its existence, the classification system was revised several times. In 2002 significant changes affected the sectors of construction, wholesale trade, retail trade and information industries. There was a slight reduction in the number of industries in 2012 with changes in some industry classification systems. In 2022, the revision took place in relation to the number of industries (their number decreased from 1,057 to 1,012) and seven industrial sectors.
The hierarchical six-digit coding system, which classifies all economic activity into 20 different industrial sectors, provides more flexibility than the four-digit SIC structure, which is its main advantage.
NAICS is formed according to the following principle:
• The first two digits of the code indicate the major business sector in which the company operates;
• The third digit represents the sub-sector of the company;
• The fourth digit identifies the industry group of the company;
• The fifth figure reflects the industry of the company;
• The sixth digit indicates the company’s national industry.
Mostly the first five digits of the code are the same in all three countries; the sixth is set in accordance with the national classification of the United States, Canada and Mexico. Each company receives a primary NAICS code, which is determined by the type of activity that served as the main source of income for the company over the past year.