Carter Hoffman

Carter Hoffman is a Research Associate at Trade Finance Global focusing on the impact of macroeconomic trends and emerging technologies on international trade.

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The North American Industry Classification System (NAICS) is the cornerstone of North America’s industry analytics. By standardising the classification of business establishments, NAICS facilitates economic data analysis, aids policy development, and enhances business operations across Canada, the United States, and Mexico.

Understanding NAICS

NAICS is a framework used by governmental statistical agencies to classify business establishments. It assigns codes based on the primary business activities, allowing for a standardised comparison of industry-related data across North America.

Benefits of NAICS

• Strategic business planning: Businesses leverage NAICS for market analysis to strategise and benchmark their performance against industry standards. This helps identify growth opportunities and competitive positioning.
• Facilitation of economic policy: NAICS data is crucial for lawmakers to draft policies that promote economic growth and sustainability within specific industries.
• Enhanced marketing: Marketers use NAICS codes to segment markets and tailor marketing strategies effectively, ensuring they target suitable industries.
• Improved supply chain management: Companies use NAICS to identify potential new suppliers or business partners within specific industrial sectors.

Structure of NAICS

NAICS categorises the economic activities of businesses into 20 sectors, such as agriculture, manufacturing, and technology. These sectors are further broken down into subsectors, industry groups, and then industries, each identified by a hierarchical six-digit code system:

• The first two digits designate the economic sector.
• The third digit designates the subsector.
• The fourth digit designates the industry group.
• The fifth digit designates the industry.
• The sixth digit is used to designate national industries.

Example of a NAICS code: 541330 – Engineering services

• First two digits (54): These digits represent the economic sector, which for 541330 is “Professional, Scientific, and Technical Services.”
• Third digit (1): This digit designates the subsector. For 541330, ‘1’ indicates the subsector for “Professional, Scientific, and Technical Services.”
• Fourth digit (3): This digit identifies the industry group. The ‘3’ in 541330 points to “Specialized Design Services.”
• Fifth digit (3): This number specifies the industry within the group. In this case, the second ‘3’ narrows it down further to “Engineering Services.”
• Sixth digit (0): The final digit in the NAICS code designates national industries. The ‘0’ in 541330 indicates a specific national definition of “Engineering Services,” which can include additional details or specifications unique to the US market.

Global scope and comparison

While primarily used in North America, NAICS codes align closely with the International Standard Industrial Classification (ISIC), facilitating global trade and economic comparisons by providing a common language for analysing economic data.

NAICS: A strategic tool

The NAICS is more than just an industry classification system; it is a strategic tool integral to understanding and navigating the complexities of the North American and global economies. 

Its structured approach to classifying industry activities helps governments, businesses, and analysts track economic trends, make informed decisions and foster market growth. As the economic landscape evolves, so does NAICS, adapting to new industries and changing market dynamics, ensuring its continued relevance in a dynamic economic environment.

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