Standard Industrial Classification (SIC) System

Currently, data published in most of the Bureau of the Census' major economic statistics programs are based on the Standard Industrial Classification (SIC) system, with the exception of statistics on governments (based on governmental function), current sample surveys in construction (based on new building construction permits), and selected transportation surveys (based on truck registration).

Individual business establishments are assigned for data tabulation to one industry, based on their principal business activity. The SIC system classifies business establishments into categories of similar economic activity. Economic activities are first separated into Divisions, such as wholesale, trade, and personal and business services. The service division is identified as personal and business services to avoid confusion with the total service sector. Each Division then is subdivided into Major Groups of 2-digit SICs and Industry Groups of 3-digit SICs. The most detailed level is 4-digit Industries--about 1,100 in total. The Bureau of the Census, other government agencies, and private industry groups also subdivide 4-digit industries into 5-, 6-, or 7-digit subindustry or product detail for their own purposes. Subindustry classifications at the 5- or 6-digit level are called kinds-of-businesses. The basic SIC system is maintained by the Office of Management and Budget, only at the 4-digit industry level, to promote consistency of classification among users.

Titles and Descriptions of Service Industries
Division E. Transportation, Communications, Electric, Gas, and Sanitary Services: (SIC 4xxx)
Transportation, Communications, Electric, Gas, and Sanitary Services, SIC Major Groups 40-49, includes the U.S. postal Service and establishments which provide passenger and freight transportation, communications services, electricity, gas, steam, water or sanitary services to the general public or to other business enterprises. Also included here are various classes of establishments primarily engaged in providing storage facilities for goods owned by others. Many of these establishments also perform some incidental processing or other services such as cotton pressing, poultry dressing, and cutting and trimming of meats.
Division F. Wholesale Trade: (SIC 50xx-51xx)
Wholesale Trade, SIC Major Groups 50-51, includes establishments or places of business primarily engaged in selling merchandise to retailers; to industrial, commercial, institutional, farm, construction contractors or professional business users; or to other wholesalers; or acting as agents or brokers in buying merchandise for or selling merchandise to such persons or companies. The chief functions of establishments included in Wholesale Trade are selling goods to trading establishments, or to industrial, commercial, institutional, farm, and professional business users; and bringing buyers and sellers together. In addition to selling, functions frequently performed by wholesale establishments include maintaining inventories of goods; extending credit; physically assembling, sorting, and grading goods in large lots; breaking bulk and redistributing it into smaller lots; delivery; refrigeration; and various types of promotion such as advertising and label designing.

Wholesale Trade establishments may be divided
into three general types of operations:
Merchant wholesalers: These wholesalers always take title to the goods they sell, such as wholesale merchants or jobbers, industrial distributors, voluntary group wholesalers, exporters, importers, cash-and-carry wholesalers, drop shippers, truck distributors, retailer cooperative warehouses, terminal elevators, cooperative buying associations, and assemblers, buyers or cooperatives engaged in the marketing of farm products.
Manufacturers' sales branches and sales offices: These establishments are distinguished from merchant wholesalers in that they are owned by manufacturers and are operated primarily for marketing products that they manufacture in the United States. They must be part of a multiunit , at least one establishment of which must be a manufacturing plant. Manufacturers' sales branches by definition carry stock while manufacturers' sales offices do not.
Merchandise agents and brokers: These establishments sell (or buy) goods for others on a commission, auction, or agency basis. They do not take title to the goods they sell. Occasionally, operators perform dual functions- buying and selling both on their own account and for the account of others. In this case, the type of operation is determined by the primary activity- merchant wholesaler, if selling primarily on their own account, and merchandise agent or broker, if selling primarily for the account of others.

Division G. Retail Trade: (SIC 52xx-59xx)
Retail Trade, SIC Major Groups 52-59, includes establishments primarily engaged in selling merchandise for personal or household consumption and rendering services incidental to the sale of the goods. In general, retail establishments are classified by kind of business according to the principal lines of merchandise sold (groceries, hardware, etc.) or the usual trade designation (drug store, cigar store, etc.). Some of the important characteristics of retail trade establishments are:
1. The establishment is usually a place of business and is engaged in activities to attract the general public to buy;
2. The establishment buys or receives merchandise as well as sells;
3. The establishment may process its products, but such processing is incidental or subordinate to selling;
4. The establishment is considered as retail in the trade; and
5. The establishment sells to customers for personal or household use.
Not all of these characteristics need be present and some are modified by trade practice. Processing incidental to or subordinate to selling is often conducted at retail stores. For example, restaurants prepare meals and meat markets cut meat.

Division H. Finance, Insurance, and Real Estate: (SIC 6xxx)
Finance, Insurance, and Real Estate covers SIC Major Groups 60-67. Finance includes banks and trust companies, credit institutions, holding and other investment companies, brokers and dealers in securities and commodity contracts, and security and commodity exchanges. Insurance covers carriers of all types of insurance underwriters and insurance agents and brokers. Real estate includes owner-operators (lessors); buying, selling, and renting agents; managers; miscellaneous services related to the sale and management of real estate, such as multiple listing services, appraisers, escrow agencies and title abstract companies; and land developers and cemeteries.

Division I. Services, Personal and Business; (SIC 7xxx-8xxx)
Services, SIC Major Group 70-89, includes establishments primarily engaged in providing a wide variety of services for individuals, business and government establishments, and other organizations. Hotels and other lodging places; establishments providing personal business, automotive, repair, and amusement services; health, legal, engineering, and other professional services; educational institutions; membership organizations, and other miscellaneous services are included. Establishments which provide specialized services closely allied to Agriculture, Mining, Manufacturing, Transportation, etc. are classified in their respective divisions.

North American Industry Classification
(NAICs) System
The North American Industry Classification (NAICs) system represents the first major restructuring of the current Standard Industrial Classification (SIC) system in the last fifty years. Developed among the United States, Canada, and Mexico, NAICs splits the current Division I (Services) of the SIC into nine different sectors. About 150 new service industries are created under this new system.

Why Has the United States Mounted This Effort?
The Standard Industrial Classification (SIC) system is quite old, and is still based on concepts developed in the 1930's when services did not dominate the economy. Despite some revisions to the SIC, the last time in 1987, important new and emerging segments of the economy are under represented in the present system, or are not represented at all. Public dissatisfaction with the SIC has grown in recent years, and increasingly the old system is viewed as inappropriate for generating the data that are needed for economic analysis. The diminishing utility of current classifications to support widely varied economic analyses by the public and private sectors, prompted the U.S. Government to conduct a "fresh slate" examination of the SIC system. In 1992, the Office of Management and Budget established the Economic Classification Policy Committee (ECPC) to begin exploring the uses of economic data that are produced using classification systems.

Choosing a New Approach
The ECPC's approach to classifications is a departure from the traditional approach, at least as it has developed in the United States. Although the ECPC agreed with the traditional view that there are multiple uses for data, the Committee concluded that the major analytic needs for classified data can be grouped into two major classes of use. Briefly, one class of uses requires that a classification system be erected on a production-oriented concept, also known as a "supply-based" concept. A second major class of uses requires that data be grouped according to a market-oriented concept, otherwise known as a "demand-based" concept. The three countries have agreed to adopt the production-oriented concept for NAICS. A statement issued by the ECPC, Statistics Canada, and Mexico's Instituto Nacional de Estadistica, Geografia e Informatica (INEGI) reads, in part:  "The uses of industrial statistics which include measuring productivity, unit labor costs, and the capital intensity of production require that information on outputs and inputs be used together. Moreover, statistical agencies in the three countries expect to be called upon to produce information on inputs and outputs, industrial performance, productivity, unit labor costs, employment, and other statistics in order to analyze the effects of the North American Free Trade Agreement. An industry classification system erected on a production-oriented, or supply-based, conceptual framework will assure maximum usefulness of industrial statistics for these and similar purposes. Therefore, the three countries agree that the new North American Industry Classification System should conform to a production-oriented economic concept."

The reasoning behind the three countries' decision may be summarized as follows. An industry is a grouping of producing units. Though it inevitably groups the products of the economic activities that are included in the industry definition, it is not solely a grouping of products. Accordingly, an industry classification system provides a framework for collecting the variables that describe production--inputs and outputs--together on a consistent basis. The industry system thus groups data for analyses for which it is important that inputs and outputs be used together. However, the ECPC also concluded that detailed information on products is important for many uses of economic data, and that constructing groupings of market products is important for many uses of economic data, and that constructing groupings of market products is necessary to serve purposes that are not met by industry groupings. For example, the production of photographic film entails a chemical process and, therefore, it has been proposed that film be moved to the chemicals sector in NAICS; but film is generally distributed and marketed with photographic equipment and supplies, so there is interest in a photographic market grouping. Thus, the ECPC has proposed that separate market groupings of product information be created from information derived from the 1997 Economic Census.

Although the new NAICS system will require major changes to the current infrastructure for industry classifications, the benefits will greatly outweigh the burden of change and implementation. NAICS will provide a common, up-to-date system of industry classification for use by all three North American countries. The system will recognize new, emerging, and advanced technology and service industries; be comparable at the most detailed level possible, limited only by differences in national economies; allow participants to add details needed to reflect economic differences; strive for compatibility with comparable two-digit U.N. classifications; and be updated through regular three-country reviews of classification experience and economic changes.

Services Classifications
The three North American countries have agreed to give special attention to classifications for service industries, as well as for high-tech and new and emerging industries. In NAICS, the term "subsector" corresponds to the old 2-digit SIC formerly used in the SIC. Compared with the old 1987 SIC "Communications," the NAICS "Broadcasting and Telecommunications subsector has been restructured to reflect the changing technology of the subsector. For example, a new "Satellite Telecommunications" was created in NAICS from part of 1987 SIC Industry Code 4899, "Communications," Not Elsewhere Classified. The number of industries in this subsector increased from 7 in the 1987 SIC to eleven for the NAICS.

The NAICS creates a Food services and Drinking Places subsector, formerly in the retail trade division, and will bring them together in a NAICS industry sector. In addition, where the old SIC had only a simple "Eating Places" industry, the new NAICS splits this into eight detailed industries, to recognize differences between limited-service restaurants, "fast food" and cafeterias and full-service restaurants, as well as caterers, snack shops, and food service contractors. The NAICS also creates an Information-related sector that will link industries engaged in the creation of intellectual products and their mass dissemination. Under the principles for the Information sector, the publishing of books, newspapers and magazines will be grouped with the publishing of music and of software, because all these activities involve the creation of an intellectual product, plus the processes necessary to bring the intellectual product into production, and to plan its marketing and distribution. The publishing of books and newspapers was formerly located in the manufacturing sector of the SIC, as if publishing were merely adjunct to printing. On the other hand, the reproduction of packaged software, the software products that one can buy off the shelf in a computer store, is viewed in the NAICS as being analogous to the printing of books and newspapers. Accordingly, the reproduction of packaged software, recordings, CD ROMs, and so forth, are located in the manufacturing sector of the NAICS, when these reproduction processes are located in establishments that are different from the publishing establishments.

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