What is an industry?
An industry is a collection of businesses that produce and/or sell the same, or similar, types of goods or services. Companies make up an industry. For example, General Motors and Ford Motor Company are both companies, and both are part of the automotive industry because they produce similar goods, namely cars and light trucks.
It is easy to see why the press and analysts talk about industries. Grouping similar companies together makes sense if one wants to understand how an individual company compares to others like it or to see how larger sections of the economy are doing. Keep in mind that even if a news story or headline doesn't mention the word, it can still be talking about an industry, as is the case with the headlines below.
To facilitate collection of data about industries, the Federal Government developed the North American Industry Classification System or NAICS.
What is NAICS?
NAICS was developed in 1997 to replace the previous Standard Industrial Classification (SIC) system. NAICS was developed jointly by the U.S., Canada, and Mexico, and is used by all three North Americans countries to make international comparisons easier.
NAICS is a "system for classifying establishments by type of economic activity. Its purposes are: (1) to facilitate the collection, tabulation, presentation, and analysis of data relating to establishments, and (2) to promote uniformity and comparability in the presentation and analysis of statistical data describing the economy" (NAICS Official Notice). In other words, NAICS makes it easier to collect industry data and ensures that State agencies, trade associations, and private businesses are referring to the same thing when they talk about an industry.
How does NAICS work?
NAICS groups establishments into industries based on the similarity of their production processes. There are 20 sectors and 1,175 industries in the 2007 NAICS United States.
NAICS uses a six-digit coding system to identify an industry. Industries are placed in a hierarchy of sector, subsector, industry group, NAICS industry and national industry. Here is the generic hierarchy:
0123 Industry Group
01234 NAICS industry
012345 National Industry
Or, using an example:
44 Retail Trade
443 Electronics and Appliance Stores
4431 Electronics and Appliance Stores
44311 Appliance, Television, and Other Electronics Stores
443111 Household Appliance Stores
You can find the complete listing of NAICS codes as well as the history of the classification system at http://www.census.gov/eos/www/naics/ or in print in the Kent Library Reference Collection in North American Industry Classification System, United States (R 338.020973 N811 2007).
How can NAICS be used when researching an industry?
Because of its hierarchical nature, researching industries using the NAICS codes makes it easier to understand how industries are related and how they can be broken down. Using our example above, one can see that household appliance stores are a kind of retail store and are grouped together with electronics stores, which have their own NIACS code (443112). If we think about this in terms of companies it means that a store that sells appliances, e.g., Sears, is related to a store that sells electronics, e.g., Best Buy, and both are types of retail stores. When you are researching industries this hierarchy helps you to understand what you are searching for. Are you interested in retail stores generally? Do you want to find information about all types of electronic and appliance stores? Or, are you interested in something more specific, like just appliance stores?
Keep in mind that both the NAICS website and the print edition contain detailed descriptions of each industry, which can also help you understand the division of industries.
For more information on researching industries also see the Industry Information Research Guide at http://library.semo.edu/learn/guides/industry.html.