Our dynamic economy continually changes, which as led to a second revision to the North American Industry Classification System (NAICS). 

In 1997, the Office of Management and Budget (OMB) announced its decision to adopt the NAICS (pronounced Nakes) as the industry classification system used by the statistical agencies of the United States. NAICS replaced the 1987 Standard Industrial Classification (SIC).  NAICS was developed jointly by the United States, Canada and Mexico to provide new comparability in statistics about business activity across North America. These three countries are partners of NAFTA (North American Free Trade Agreement).   

Rapid changes in both the United States. and world economies brought the SIC under increasing criticism and resulted in the need for a new classification system to better classify businesses according to their economic activity.  The SIC system was developed in the 1930s at a time when manufacturing dominated the U.S. economic scene. Over the last 60 years, there have been numerous revisions to the SIC system, reflecting the economy's changing industrial composition. However, despite these revisions, the system had received increasing criticism about its ability to handle rapid changes in the U.S. economy. 

The 1990s was a time when new developments in information services, new forms of healthcare provision, expansion of services and high-tech manufacturing began to reshape the economy. These examples of industrial changes could not be studied under the SIC system.

NAICS, developed using a production-oriented conceptual framework, groups establishments into industries based on the activity in which they are primarily engaged. Establishments using similar raw material inputs, similar capital equipment and similar labor are classified in the same industry. In other words, establishments that do similar things in similar ways are classified together.

The first revision for NAICS took place in 2002, and in 2007 the NAICS system needed a second revision to reflect the economy's changing industrial composition and organization. 

NAICS classifies all economic activities into 20 sectors. The NAICS sectors begin with the following two digit codes:

NACIS 2-digit Industries
Code	Title
11	Agriculture, Forestry, Fishing and Hunting
21	Mining
22	Utilities
23	Construction
31-33	Manufacturing
42	Wholesale Trade
44-45	Retail Trade
48-49	Transportation and Warehousing
51	Information
52	Finance and Insurance
53	Real Estate and Rental and Leasing
54	Professional, Scientific, and Technical Services
55	Management of Companies and Enterprises
56	Administrative and Support and Waste Management and Remediation Services
61	Educational Services
62	Health Care and Social Assistance
71	Arts, Entertainment, and Recreation
72	Accommodation and Food Services
81	Other Services (except Public Administration)
92	Public Administration

 

The 2007 revision was limited in scope nationally; for South Dakota, approximately 140 establishments were impacted.  The revisions involved three main industries:  telecommunications, executive search services, and research and development in biotechnology.  There were also some minor changes in the agricultural, manufacturing and real estate investment trusts industries; however, the effect was minimal. 

NAICS Classification Changes
2002	2007
Cable & Other Program Distribution	Wired Telecommunications Carriers
Internet Service Providers	Broadband Internet Service Providers or Internet Service Providers
Paging	Wireless Telecommunications Carriers
Web Search Portals	Internet Publishing & Broadcasting & Web Search Portals
Executive Search Services	Executive Search Services
Scientific Research & Development Services	Research & Development in Biotechnology

  

The telecommunications part of the information sector is ever changing.  Companies now offer a wider variety of services.  Consumer demand for wireless services continues to rise. Traditional wired services have become more easily replaced by wireless services. Today’s wireless technology is increasingly reliable, clear and offers a growing variety of features. Increased reliability of service has led to larger numbers of “wireless only” consumers who have no landline telephone. New features of wireless phones allow users to send e-mail, take pictures and even watch television broadcasts. The expressions ''information age'' and ''global information economy'' are used with considerable frequency today.  Generally, the information age means every industry is now using available information and information technology to reorganize and make itself more productive. 

Under the 2007 NAICS, certain industries were collapsed, meaning industry codes and descriptions were no longer valid under 2002 NAICS.  Instead these industries were shifted to new classification codes and industry descriptions. Cable and other program distribution moved to wired telecommunications carriers. Internet service providers shifted to broadband Internet service providers (via cable modem, DSL) or Internet service provider via client-supplied connection (dial-up). Paging moved to wireless telecommunications carriers. Web search portals became part of Internet publishing and broadcasting and web search portals.  The end result was all the establishments still remained in the information sector. 

Executive search services was previously coded under professional, scientific and technical services, specifically human resources consulting services.  Executive search services now will have its own code with the 2007 revision.  These services are now a section of administrative and support and waste management and remediation services.  This U.S. industry comprises establishments primarily engaged in providing executive search, recruitment and placement services for clients with specific executive and senior management position requirements.  The individuals identified, recruited or placed are not employees of the executive search services establishments.  Essentially for South Dakota, approximately 22 establishments were reclassified into executive search services.

The industry research and development in biotechnology, once a part of scientific research and development services, now will have its own classification code.  The reason for this separation is because it is being recognized as an emerging industry.  This U.S. industry comprises establishments primarily engaged in conducting biotechnology research and experimental development.  Biotechnology research and experimental development involves the study of the use of microorganisms and cellular and biomolecular processes to develop or alter living or non-living materials.  This research and development in biotechnology may result in development of new biotechnology processes or in prototypes of new or genetically-altered products that may be reproduced, utilized or implemented by various industries.  Illustrative examples include cloning research and experimental development laboratories, DNA technologies (e.g., microarrys) research, nanobiotechnologies research and experimental development laboratories.  South Dakota now has 10 establishments within the research and development in biotechnology industry.

Conclusion

NAICS is a unique system for classifying business establishments. It is the first economic classification system to be constructed based on a single economic concept. Economic units that use like processes to produce goods or services are grouped together. This "production-oriented" system means that statistical agencies in the United States will produce data that can be used for measuring productivity, unit labor costs and the capital intensity of production; constructing input-output relationships; and estimating employment-output relationships and other such statistics that require that inputs and outputs be used together.  Data and statistics published by the U.S. statistical agencies will be on a consistent basis with industry data provided by Canada and Mexico's statistical offices. NAICS is forward looking and flexible, anticipating increasing globalization and providing enhanced industry comparability among the NAFTA trading partners while recognizing important national industries and providing for periodic updates through a three-country review. NAICS recognizes the structural and technological changes occurring in the economies of the three North American countries and provides the means to measure these changes well into the next millennium.