Purpose of Sic Codes
Standard Industrial Classification (SIC) codes are four-digit codes that classify establishments by their primary type of business activity. SIC codes were in use from 1977 to 1997 when they were replaced by the North American Industry Classification System (NAICS). The NAICS uses six-digit codes and covers establishments in Canada and Mexico as well as the United States. The U.S. Census Bureau said SIC and NAICS codes have the same purpose: Classifying business establishments in a standardized fashion to facilitate statistical analysis of our economy's performance by government statistical agencies, academia, economic regulators and private business entities.
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Classification Code History
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Prior to establishment of SIC codes, different statistical entities used their own business classification systems tailored to each entity's purpose or objective. As a result, statistics from different entities weren't always comparable, said the Census Bureau. Demand arose for a standardized business classification system that could be used by all pubic and private-sector entities. The result was the system of SIC codes.
SIC Code Drawbacks
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The need for a new industry classification system became apparent in the early 1990s, according to the Census Bureau.. The SIC codes were weak in the services sector, with too few codes to capture the structural shift from a manufacturing economy to a service economy, or the subtle but important distinctions emerging among service providers. There also weren't enough codes to capture all the differences between supply-side and demand-side enterprises, or capture the effects of mergers and restructuring.
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Development of NAICS
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The NAICS was developed jointly by the U.S. Economic Classification Policy Committee, Statistics Canada and Mexico's Instituto Nacional de Estadistica y Geografia with the goal of having a high level of business statistics comparability among the North American Free Trade Agreement partners, the United States, Canada and Mexico. The NAICS succeeded the SIC in 1997. It was last updated in 2007. The NAICS is published under authority of the U.S. Office of Management and Budget. The Census Bureau publishes concordances for correlating NAICS codes with SIC codes and industrial classification codes used in Europe and Asia.
NAICS Code Meanings
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The six-digit NAICS follow a specific format, said the Census Bureau, and provide five increasingly-specific levels of detail. The first two digits identify the economic sector, the third digit the economic subsector, the fourth digit the industry group, the fifth digit the industry group segment, and the sixth digit the national industry group. The sixth digit allows for capture of nation-specific details. The Census Bureau has an online NAICS database for finding the codes applicable to a specific business, and publishes all the codes in indexed book form..
Periodic Updates
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The NAICS goes through periodic updates. Updating is done by the U.S. Economic Classification Policy Committee. The process involves collecting suggestions from all U.S., Canadian and Mexican stakeholders for NAICS revisions. The Classification Policy Committee transforms the suggestions into a set of recommendations to the Office of Management and Budget. That agency then takes comments on the recommendations, makes the final decisions on revisions and compiles them into a new NAICS classification manual.
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References
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