Explanatory Notes — Industry Classification

The North American Industry Classification System (NAICS) is an industry classification system developed by the statistical agencies of Canada, Mexico and the United States.

NAICS was jointly adopted in 1997 by Canada, Mexico and the United States against the backdrop of NAFTA. The classification was designed to provide common definitions of the industrial structure of the three countries and a common statistical framework to facilitate the analysis of the three economies.

Considering the dynamics of today's economies, Canada, the United States and Mexico agreed upon revisiting the structure of the North American Industry Classification System (NAICS) every five years to make any necessary changes. The current version of NAICS was adopted in 2007.

Like the Standard Industrial Classification (SIC) which it replaced in 1987, NAICS is a system for arranging producing units into industries. The classification has been developed as a method of grouping businesses that produce the same or similar product and/or services and uses a hierarchical structure, getting more specific at lower levels

Basis of Classification

More precisely, the NAICS is a system for arranging producing units at the establishment level into industries.

The establishment, as a statistical unit, is defined as the most homogeneous unit of production for which the business maintains accounting records from which it is possible to assemble all the data elements required to compile the full structure of the gross value of production (total sales or shipments, and inventories), the cost of materials and services, and labour and capital used in production.

To see how the establishment differs from other business units such as the enterprise, the company etc., please refer to the Statistics Canada document  Statistical units in Business Surveys.

When all the relevant data relating to the production sectors of the economy are added together with complete coverage and no duplication, a fully integrated system of economic statistics exists. This is the primary aim of industrial classification systems.

As such, NAICS is constructed within a supply-based, or production-oriented, conceptual framework where establishments using similar production processes to produce goods and services are grouped to form industries. The boundaries between industries demarcate, in principal, differences in production processes and production technologies.

NAICS is based on supply side principles to ensure that industrial data, classified to NAICS, is suitable for the analysis of production related issues such as industrial performance, inputs and outputs, productivity, unit labour costs and employment.

Structure of The NAICS

The North American Industry Classification System (NAICS) provides the structure for which the statistical agencies of Canada, Mexico, and the United States compile comparable data.

NAICS is a comprehensive system encompassing all economic activities. It has a hierarchical structure. At the highest level, it divides the economy into 20 sectors. At lower levels, it further distinguishes the different economic activities in which businesses are engaged.

Its hierarchical structure is composed of sectors (two-digit code), subsectors (three-digit code), industry groups (four-digit code), and industries (five-digit code). These are broadly comparable for all three countries, although there are a number of important exceptions.

A country may choose to breakdown industries (five-digit code) into national industries (six-digit code) in order to capture additional detail. As the name indicates, national industries are unique to each country and cross-comparisons generally do not apply.

Level* Hierarchy And
Coding Structure		 Data
Comparability
Canada - U.S. - Mexico
1 Sector - 2 digit code (**) Comparable
2 Subsector - 3 digit code Comparable
3 Industry Group - 4 digit code Comparable
4 Industry - 5 digit code Comparable
5 National Industry - 6 digit code Specific to each country

Notes:

* The level of the hierarchy does not reflect the number of digits in the numeric code. For example, the second level of the NAICS Canada hierarchy is represented by a 3-digit numeric code.

** Usually a 2-digit number defines a NAICS Canada sector. However, a set of 2-digit numbers was needed to define >Manufacturing (31-33), Retail Trade (44-45), and Transportation and Warehousing (48-49).

NAICS Manual

The full NAICS Canada 2007 Manual is published by Statistics Canada

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