1997 North American Industry Classification System1987 Standard Industrial Classification Replacement

SUMMARY: This notice presents the Office of Management and Budget's

final decisions for the adoption of the North American Industry

Classification System (NAICS) for the United States, a new economic

classification system that replaces the 1987 Standard Industrial

Classification (SIC) for statistical purposes. 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 of statistical data

describing the economy. NAICS will be used by Federal statistical

agencies that collect or publish data by industry. It is also expected

to be widely used by State agencies, trade associations, private

businesses, and other organizations.

The Instituto Nacional de Estadistica, Geografia e Informatica

(INEGI) of Mexico, Statistics Canada, and the United States Office of

Management and Budget (OMB), through its Economic Classification Policy

Committee (ECPC), have collaborated on NAICS to make the industrial

statistics produced in the three countries comparable. NAICS is the

first industry classification system developed in accordance with a

single principle of aggregation, the principle that producing units

that use similar production processes should be grouped together in the

classification. The fresh view of establishment data that this

restructuring will provide should engender insights into the

increasingly interrelated evolution of our economies. NAICS also

reflects in a much more explicit way the enormous changes in technology

and in the growth and diversification of services that have marked

recent decades. Industry statistics compiled using NAICS will also be

comparable with statistics compiled according to the latest revision of

the United Nations' International Standard Industrial Classification

(ISIC, Revision 3) for some sixty high level groupings.

NAICS will provide a consistent framework for the collection,

tabulation, presentation, and analysis of industrial statistics used by

government policy analysts, by academics and researchers, by the

business community, and by the public. Because of differing national

economic and institutional structures as well as limited resources and

time for constructing NAICS, however, the NAICS structure has not been

made entirely comparable at the individual industry level across all

three countries. For some sectors and subsectors, the statistical

agencies of the three countries have agreed to harmonize NAICS based on

sectoral boundaries rather than on a detailed industry structure. Those

sectors or subsectors are: utilities; construction; wholesale trade;

retail trade; finance and insurance; real estate; waste management and

remediation services; other services that include personal and laundry

services, and religious, grantmaking, civic, and professional and

similar organizations; and public administration. To ensure

comparability between Canada and the United States, the two countries

have agreed on an industry structure and hierarchy for each sector

listed above except for construction, wholesale trade, and public

administration. In some cases within these sectors, the United States

will provide for additional industries at the national level to reflect

important industries in the United States that will not be shown

separately in Canada. To distinguish the three countries' versions of

NAICS, they are called NAICS Canada, NAICS Mexico (SCIAN Mexico, in

Spanish), and NAICS United States.

In developing NAICS United States, OMB has published a total of

seven previous Federal Register notices advising the public of the work

of the ECPC and seeking comment on that work. The March 31, 1993,

Federal Register notice (pp. 16990-17004) announced OMB's intention to

revise the SIC for 1997, the establishment of the Economic

Classification Policy Committee, and the process for revising the SIC.

The July 26, 1994, Federal Register notice (pp. 38092-38096) set forth

the concepts for the new system and the decision to develop NAICS in

cooperation with Statistics Canada and INEGI. That notice also included

a request for the public to submit recommendations for the industries

to be included in the new system. The deadline for submitting proposals

for new or revised industries was November 7, 1994.

After considering all proposals from the public, consulting with a

large number of U.S. data users and industry groups, and undertaking

extensive discussions with INEGI and Statistics Canada, a new

industrial structure for NAICS that would apply to all three North

American countries was developed. A series of five Federal Register

notices sought comment on the structure of the system. These notices

are described in more detail in the SUPPLEMENTARY INFORMATION section

below.

As intimated by the description below of the NAICS development

process, the actual classification presented at the end of this notice

in Tables 1 and 2 reveals only the tip of the work carried out by

dedicated individuals from INEGI, Statistics Canada, and U.S.

statistical agencies. It is through their efforts, painstaking

analysis, and spirit of accommodation that NAICS has emerged as a

harmonized international classification of economic activities. This

has been an immense undertaking that has required the time, energy,

creativity, and cooperation of numerous people and organizations

throughout the three countries. The work that has been accomplished is

a testament to the individual and collective willingness of many

persons and organizations both inside and outside government to

contribute to the development of NAICS.

EFFECTIVE DATE: Federal statistical data published for reference years

beginning on or after January 1, 1997, will be published using the new

NAICS United States codes. NAICS is scheduled to go into effect in 1997

in Canada and the United States, and in 1998 in Mexico. Publication of

the 1997 NAICS United States Manual is planned for December 1997. Use

of NAICS for nonstatistical purposes (e.g., administrative, regulatory,

or taxation) will be determined by the agency or agencies that have

chosen to use the SIC for nonstatistical purposes. Readers interested

in the effective dates for the use of NAICS for nonstatistical purposes

should contact the relevant agency to determine its plans, if any, for

a transition from use of the SIC to NAICS.

ADDRESSES: Please send correspondence about the final decisions to:

Katherine K. Wallman, Chief Statistician, Office of Management and

Budget, New Executive Office Building, 725 17th Street, NW., Room

10201, Washington, D.C. 20503, telephone number: (202) 395-3093, FAX

number: (202) 395-7245.

ELECTRONIC AVAILABILITY AND CORRESPONDENCE: This document is available

on the Internet from the Census Bureau Internet site via WWW browser,

ftp, and E-mail.

To obtain this document via WWW browser, connect to ``http://

www.census.gov'' then select ``Subjects A to Z,'' then select ``N,''

then select

[[Page 17289]]

``NAICS (North American Industry Classification System).'' This WWW

page contains previous NAICS United States Federal Register notices and

related documents as well.

To obtain this document via ftp, log into ftp.census.gov as

anonymous, and retrieve the files ``naicsfr8.pdf,''

``naicsfr8tbl1.pdf,'' and ``naicsfr8tbl2.pdf'' from the ``/pub/epcd/

naics'' directory. (That directory also contains previous NAICS United

States Federal Register notices and related documents.)

To obtain this document via Internet E-mail, send a message to

[email protected] with the body text as follows: ``get gatekeeper

naics.txt''. Instructions for obtaining this and other NAICS United

States documents will be delivered as a message attachment.

Correspondence may be sent via Internet E-mail to OMB at

[email protected] (do not include any capital letters in the address).

FOR FURTHER INFORMATION CONTACT: Paul Bugg, 10201 New Executive Office

Bldg., Washington, D.C. 20503, E-mail address: [email protected],

telephone number: (202) 395-3093, FAX number: (202) 395-7245. Inquiries

about the content of industries or requests for electronic copies of

the tables should be made to Carole Ambler, Coordinator, Economic

Classification Policy Committee, Bureau of the Census, Room 2633-3,

Washington, D.C. 20233, E-mail address: [email protected],

telephone number: (301) 457-2668, FAX number: (301) 457-1343.

SUPPLEMENTARY INFORMATION:

NAICS Development Process

The Standard Industrial Classification (SIC) was originally

developed in the 1930's to classify establishments by the type of

activity in which they are primarily engaged and to promote the

comparability of establishment data describing various facets of the

U.S. economy. The SIC covers the entire field of economic activities by

defining industries in accordance with the composition and structure of

the economy. Over the years, it was revised periodically to reflect the

economy's changing industry composition and organization. OMB last

updated the SIC in 1987.

In recent years, rapid changes in both the U.S. and world economies

brought the SIC under increasing criticism. The 1991 International

Conference on the Classification of Economic Activities provided a

forum for exploring the issues and for considering new approaches to

classifying economic activity.

In July 1992, the Office of Management and Budget established the

Economic Classification Policy Committee chaired by the Bureau of

Economic Analysis, U.S. Department of Commerce, with representatives

from the Bureau of the Census, U.S. Department of Commerce, and the

Bureau of Labor Statistics, U.S. Department of Labor. OMB charged the

ECPC with conducting a ``fresh slate'' examination of economic

classifications for statistical purposes and determining the

desirability of developing a new industry classification system for the

United States based on a single economic concept. A March 31, 1993,

Federal Register notice (pp. 16990-17004) announced OMB's intention to

revise the SIC for 1997, the establishment of the Economic

Classification Policy Committee, and the process for revising the SIC.

The ECPC published six issue papers relating to industrial

classification for comment. Those papers are as follows:

Issues Paper No. 1--Conceptual Issues

Issues Paper No. 2--Aggregation Structures and Hierarchies

Issues Paper No. 3--Collectibility of Data

Issues Paper No. 4--Criteria for Determining Industries

Issues Paper No. 5--The Impact of Classification Revisions on Time

Series

Issues Paper No. 6--Services Classifications

In addition to these issue papers, two research reports were

published providing further information on industry classifications.

The first report was part of a comparative review of Canadian and U.S.

SIC concepts. The ECPC and Statistics Canada reviewed the existing

structure of detailed ``4-digit'' industries in the 1987 U.S. SIC and

the 1980 Canadian SIC for conformance to economic concepts. The results

of the U.S. review are contained in ECPC Report No. 1, ``Economic

Concepts Incorporated in the Standard Industrial Classification

Industries of the United States,'' and the Canadian results are

contained in ``The Conceptual Basis of the Standard Industrial

Classification,'' Standards Division, Statistics Canada. The second

ECPC report evaluated U.S. industries using the new ``index of

heterogeneity'' to assess whether establishments in existing 1987 4-

digit industries met the conditions for the production-oriented

classification concept, as presented in ECPC Issues Paper No. 1. The

ECPC Report No. 2 is titled ``The Heterogeneity Index: A Quantitative

Tool to Support Industrial Classification.''

A July 26, 1994, Federal Register notice (pp. 38092-38096)

announced that the ECPC was developing NAICS in cooperation with INEGI

and Statistics Canada and proposed that NAICS replace the 1980 Canadian

SIC, the Mexican Classification of Activities and Products (1994)

(CMAP), the industry classification system of Mexico, and the 1987 SIC

in the United States. The notice requested comments on that proposal

and on the structure of the new system. That notice also included the

concepts of the new system and the principles upon which the three

countries proposed to develop NAICS, as follows:

(1) NAICS will be erected on a production-oriented, or supply-

based, conceptual framework. This means that producing units that use

identical or similar production processes will be grouped together in

NAICS.

(2) The system will give special attention to developing

production-oriented classifications for (a) new and emerging

industries, (b) service industries in general, and (c) industries

engaged in the production of advanced technologies.

(3) Time series continuity will be maintained to the extent

possible. However, changes in the economy and proposals from data users

must be considered. In addition, adjustments will be required for

sectors where Canada, Mexico, and the United States presently have

incompatible industry classification definitions in order to produce a

common industry system for all three North American countries.

(4) The system will strive for compatibility with the 2-digit level

of the International Standard Industrial Classification of All Economic

Activities (ISIC, Rev. 3) of the United Nations.

In response to the July 26, 1994, Federal Register notice, the ECPC

received 125 public responses to the call for proposals for new and

revised industries, plus 8 responses from 6 State government agencies,

and 9 responses from 6 Federal Government agencies. These formal

responses contained several hundred proposals. Additional proposals and

suggestions for change arose from the extensive ECPC public outreach

program, which consisted of meetings and other communications with

industry, data user, and data respondent groups. Other proposals for

modifications such as changing industry definitions and clarifying

boundaries, came from U.S. statistical agency personnel who worked on

NAICS, reflecting accumulated public

[[Page 17290]]

comments and criticism, over a number of years, of the U.S. SIC system.

The ECPC also received a number of proposals to eliminate U.S.

industries, or to combine them with other industries.

Comments to the ECPC from these sources ranged over many aspects of

the 1987 SIC system. For example, approximately 20 percent of the

formal letters received concerned ambiguities in the titles and

definitions of the 1987 SIC industries, and incomplete or out-of-date

product lists. More than 40 respondents requested better-defined

product detail within existing industries, without necessarily

requesting changes to industry boundaries. These product-oriented

requests and suggestions are being handled through the redesign of

forms where product information is collected in the 1997 Economic

Censuses.

Another group of responses to the notice were proposals for a

``separate, market-oriented product grouping system'' (July 26, 1994,

Federal Register, p. 38095). These proposals were submitted as industry

proposals but, after analysis by the ECPC, were found more

appropriately to be market-oriented product groupings, and have been

held over for action during production of the product coding system

discussed below.

Proposals were also received for changing or modifying the

boundaries of existing industries, without necessarily creating a new

industry. In addition, changes to 1987 SIC industry definitions were

frequently required to bring about compatibility with the Canadian and

Mexican classifications (as were corresponding changes in those

countries' classification systems). Those changes are listed and

described in five Federal Register notices that portray portions of the

proposed NAICS United States system. These notices are described more

fully below. Some changes that were required for international

compatibility interacted with proposed changes from the U.S. public,

and in some cases the two kinds of changes resulted in a broader

rethinking of the entire portion of the structure.

The ECPC established seven subcommittees composed of senior

economists, statisticians, and classification specialists representing

14 of the Federal agencies that use the SIC. Subcommittees were

established for Agriculture; Mining and Manufacturing; Construction;

Distribution Networks (retail trade; wholesale trade; and

transportation, communications, and utilities); Finance, Insurance, and

Real Estate; Business and Personal Services; and Health, Social

Assistance, and Public Administration. They were responsible for

developing the proposed structure of NAICS in cooperation with

representatives from INEGI and Statistics Canada. The ECPC also

established the U.S. Coordinating Committee that was responsible for

coordinating the work of the U.S. subcommittees and the work with INEGI

and Statistics Canada.

The structure of NAICS was developed in a series of meetings among

the three countries. Public proposals for individual industries from

all three countries were considered for acceptance if the proposed

industry was based on the production-oriented concept of NAICS.

As groups of subsectors of NAICS were completed and agreed upon by

the three countries, the ECPC published the proposed industries for

those subsectors for public comment in the Federal Register. Five

successive Federal Register notices were published asking for comment.

A first notice published in the Federal Register, July 26, 1995 (pp.

38436-38452), requested comment on proposed industry structures for

petroleum and coal product manufacturing, chemical manufacturing, and

rubber and plastics manufacturing; for broadcasting and

telecommunications; and for food services and drinking places and

accommodations. A second Federal Register notice published on February

6, 1996 (pp. 4524-4578), requested comment on proposed industry

structures for crop production, animal production, forestry and

logging; textile mills, textile product mills, apparel manufacturing,

and leather and allied product manufacturing; food manufacturing and

beverage and tobacco product manufacturing; fabricated metal product

manufacturing; machinery manufacturing; electrical equipment, appliance

and component manufacturing; and transportation equipment

manufacturing. A third Federal Register notice published on May 28,

1996 (pp. 26558-26668), requested comment on proposed industry

structures for health and social assistance; educational services;

computers and electronics product manufacturing; furniture

manufacturing; printing and related support activities; professional,

technical and scientific services; performing arts, spectator sports

and related industries; museums, historical sites and similar

institutions; recreation, amusement and gambling; information; wood

product manufacturing, except furniture; rental and leasing; repair and

maintenance; management and support; transportation; mining; paper

manufacturing; nonmetallic minerals manufacturing; primary metal

manufacturing; miscellaneous manufacturing; and postal service and

couriers. A fourth Federal Register notice published on July 5, 1996

(pp. 35384-35515), requested comment on proposed industry structures

for finance and insurance; wholesale trade; retail trade; construction;

utilities; waste management and remediation services; real estate;

lessors of other nonfinancial assets; personal and laundry services;

and religious, grant making, civic, and other membership organizations.

That notice also requested comments on the proposed hierarchy and

coding system for NAICS. Finally, a fifth Federal Register notice

published on November 5, 1996 (pp. 57006-57183), announced the ECPC's

final recommendations to OMB for the complete structure of NAICS United

States, including the hierarchy and coding system, and asked for public

comments. Final comments were due on December 20, 1996. Changes

incorporated into the new system based on comments in response to the

November 5, 1996, notice are presented in the section below containing

OMB's Final Decisions.

In response to those notices, the ECPC received approximately 400

additional comments. A significant number of these comments supported

the development of NAICS, expressed the view that NAICS is a

significant improvement over the SIC system, or supported the inclusion

in NAICS of specific industries. Other comments requested clarification

of a concept or industry title. Of the few who commented on the

proposed coding system, over one-half supported the 6-digit system that

has been adopted. Over one-half of the comments received requested

changes to the proposed system. Some of these proposed changes were

requests for new or revised industries even though the deadline for

receiving such requests was November 7, 1994. However, the ECPC did

consider these new requests. There were also requests for title

changes. Each comment was carefully considered, as were comments

received by INEGI and Statistics Canada. After consultation with INEGI

and Statistics Canada, changes based on the comments were incorporated

into the ECPC's final recommendations to OMB for NAICS United States as

presented in the November 5, 1996, Federal Register notice (pp. 57006-

57183).

NAICS Structure

NAICS is organized in a hierarchical structure, much like the

existing U.S.

[[Page 17291]]

SIC. The 1987 SIC employs a 4-digit coding system, in which the first

two digits designate a ``major group'' that in NAICS is known as a

``subsector,'' the third digit designates the industry group, and the

fourth digit designates the industry. For example, in the 1987 U.S.

SIC, the two digits 26 designate the major group for the manufacture of

``Paper and Allied Products,'' within which the digits 262 designate an

industry group titled ``Paper Mills,'' which contains one 4-digit

industry, SIC 2621, also titled ``Paper Mills.''

NAICS employs a 6-digit coding system in which the first two digits

designate the sector (the NAICS term ``sector'' is replacing the term

``division'' used in the 1987 SIC), the third digit designates the

subsector, the fourth digit designates the industry group, the fifth

digit represents the NAICS industry (the most detailed level at which

comparable data will be available for Canada, Mexico, and the United

States), and the sixth digit designates individual country-level

national industries. Using the paper mill example above, in NAICS

United States industry 322121 the two initial digits 32 designate a

manufacturing sector and the three digits 322 designate the paper

manufacturing subsector. Within 322 is the industry group 3221, Pulp,

Paper, and Paperboard Mills, within which is NAICS industry 32212,

Paper Mills. There are two U.S. national industries under Paper Mills:

322121, Paper (except Newsprint) Mills, and 322122, Newsprint Mills.

The NAICS coding system was expanded to six digits from the four

digits used in the SIC for two reasons. First, it is desirable that the

first character or characters in a coding system designate the sector.

A modern economy is too complex to be described adequately with the

nine or ten sectors permitted by using only a single digit in a coding

system. For example, NAICS has 20 sectors. Accordingly, the first two

digits are used to designate the sector in NAICS.

Second, the NAICS agreements among the ECPC, INEGI, and Statistics

Canada permit each country to designate detailed industries, below the

level of a five-digit NAICS industry, to meet national needs. The

United States will have such national industry detail in many places in

the new classification. The sixth digit in the NAICS United States

codes designates the U.S. detailed national industries.

Thus NAICS will have a six-digit coding system in which the first

two digits designate the NAICS sector, and the third, fourth, fifth,

and sixth digits designate, respectively, the NAICS subsector, industry

group, and industry, and U.S. national industry (if any). Although the

1997 NAICS United States industries will now have six digits compared

with four digits for 1987 U.S. SIC industries, there will not be a

uniform corresponding increase in classification detail that the 1997

NAICS United States provides compared with the 1987 U.S. SIC. As

explained above, the two additional digits primarily allow for more

sectors and for individual country-level detailed national industries.

NAICS United States Highlights

The 1987 U.S. SIC (excluding Nonclassifiable Establishments)

includes 10 divisions subdivided into 1004 4-digit industries, of which

125 are nonmanufacturing goods producing industries (agriculture,

mining, construction, and electric, natural gas, and water utility

industries); 459 are manufacturing industries; and 420 are service

producing industries. In contrast, the 1997 NAICS United States

(excluding Unclassified Establishments) has 20 sectors subdivided into

1174 5-digit and/or 6-digit industries, of which 132 are

nonmanufacturing goods producing industries (agriculture, mining,

construction, and electric, natural gas, and water utility industries);

473 are manufacturing industries; and 569 are service producing

industries. Most of the 170 industry increase between the 1987 U.S. SIC

and the 1997 NAICS United States is in the service producing industries

with a net increase of 149 industries, although there are net increases

of seven industries in the Agriculture, Forestry, Hunting, and Fishing

sector; one in Utilities; two in Construction; and 14 in Manufacturing.

There is a net decrease of three industries in Mining.

Most of the changes in the Agriculture, Forestry, Hunting, and

Fishing sector and the Mining sector are the result of changes

necessary to achieve comparability with Canada and Mexico. The

Utilities sector was reorganized to reflect the changing regulatory and

technological structure of the industries within that sector.

The Manufacturing sector was reorganized to promote international

comparability and to recognize technological changes occurring in that

sector. For example, a new subsector, Computer and Electronic Product

Manufacturing, was created to bring together industries producing

electronic products and their components. The manufacture of computers,

communications equipment, audio and video equipment, and semiconductors

is grouped into the same subsector because of the inherent

technological similarities of their production processes, and the

likelihood that these technologies will continue to converge in the

future. An important change is that the reproduction of packaged

software is placed in this sector, rather than in the services sector,

because the reproduction of packaged software is a manufacturing

process, and the product moves through the wholesale and retail

distribution systems like any other manufactured product. NAICS

acknowledges the importance of these electronic industries, their rapid

growth over the past several years, and the likelihood that these

industries will, in the future, become even more important in the

economies of the three North American countries.

NAICS creates a new sector, Information, that groups industries

that primarily create and disseminate products with intellectual

property content. In addition, the NAICS Information sector brings

together those activities that transform information into a commodity

that is produced and distributed, and activities that provide the means

for distributing those products, other than through traditional

wholesale-retail distribution channels. A few of the newly revised

industries in this sector include: database and directory publishers;

software publishers; music publishers; paging services; cellular and

other wireless telecommunications services; telecommunications

resellers; and satellite telecommunications. Also included in the

Information sector are newspaper, periodical, and book publishers (but

not printing, which is still included in manufacturing); motion picture

and sound recording industries; and libraries and archives. There are

34 industries in the Information sector, 20 of which are new.

NAICS divides the 1987 SIC Services division into eight new

sectors. One of the new sectors is the Professional, Scientific and

Technical Services sector, which comprises establishments engaged in

activities where human capital is the major input. The industries

within this sector are defined by the expertise and training of the

service provider. The sector includes such industries as offices of

lawyers; engineering services; environmental consulting services;

advertising agencies; and translation and interpretation services.

Forty-eight industries comprise this sector, 29 of which are recognized

for the first time.

The new sector, Health Care and Social Assistance, recognizes the

merging of the boundaries of health care and social assistance. The

industries in

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this new sector are arranged in an order that reflects the range and

extent of health care and social assistance provided. Some new

industries are family planning centers, out-patient mental health and

substance abuse centers, HMO medical centers, diagnostic imaging

centers, continuing care retirement communities, and homes for the

elderly. This sector has 39 industries, 27 of which are new.

A new sector for Arts, Entertainment, and Recreation greatly

expands the number of industries provided for these services. There are

25 industries in this sector, 19 of which are new.

Another new sector is Accommodation and Foodservices that combines

eating and drinking places (formerly in Retail Trade) with

accommodations (formerly in the Services division). There are 15

industries in this sector, 10 of which are new. Some new industries

recognized in this sector are casino hotels, bed and breakfast inns,

full-service restaurants, and limited-service restaurants.

Other new sectors that were created from industries in the 1987 SIC

Services division are Real Estate and Rental and Leasing that has 24

industries, 15 of which are new; Administrative and Support, Waste

Management and Remediation Services that has 43 industries, 29 of which

are new; Educational Services that has 17 industries, 12 of which are

new; and Other Services (except Public Administration) that has 52

industries, 19 of which are new.

Product Classification System

The July 26, 1994, Federal Register notice (p. 38095) specifies

that market-oriented, or demand-based groupings of economic data are

required for many purposes; some of these purposes may not be well

served by a production-oriented industry classification system. The

ECPC committed to a program that will provide improved data for

purposes that require market-orient groupings.

The first part of that commitment was to expand the lists of

commodities and services that would be available from the 1997 Economic

Census. A Product Code Task Force was formed and charged with improving

the basic lists of products and commodities and with constructing new

detailed codes that will be compatible across U.S. statistical agencies

and that will also mesh to the extent possible with international

detailed commodity or product systems. In the manufacturing area, the

investment goods product detail (1987 SIC major groups 35-38) has been

revised to better compare to the international Harmonized System

product detail. In addition, the Census Bureau and Bureau of Labor

Statistics have developed a plan to provide more comparable product

data from their statistical programs. In the nongoods producing

industries, additional product detail has been added for certain

industries, including professional, scientific, and technical services;

software publishing; and communications.

The second part of the ECPC commitment was to develop a product

classification system for use by all U.S. government statistical

agencies in 2002. Preliminary plans are now being developed to begin

the process of creating a product classification system. It is planned

to develop this system in cooperation with INEGI and Statistics Canada.

OMB's Final Decisions

After taking into consideration comments submitted in response to

the November 5, 1996, Federal Register notice, as well as benefits and

costs, and after consultation with the ECPC, INEGI, and Statistics

Canada, OMB has made the final determination of the scope and substance

of NAICS United States. In general, OMB accepted the ECPC's final

recommendations published in the November 5, 1996, Federal Register

notice. However, in response to public comment and additional

information gained in consultation with the ECPC, INEGI, and Statistics

Canada, OMB made some changes to the ECPC's recommendations for NAICS

United States.

OMB received 37 public responses and 6 responses from State

government agencies to the November 5, 1996, Federal Register notice.

Comments to OMB from these sources can be grouped into a few

categories. Almost half the letters requested further changes to the

NAICS United States structure, including title changes. OMB carefully

considered these requests and any changes accepted are noted below.

Seven of the letters specifically supported NAICS United States and

thanked the ECPC for its work. Three of the letters objected to the

reclassification of auxiliaries, which also is addressed below. The

remainder of the letters requested clarification of industry content,

discussed detailed implementation issues, or spoke of regulatory

concerns. The ECPC is currently preparing a response for each of these

letters.

In response to comments and consultation, OMB has made the

following determinations:

Mining--NAICS United States 213112, Support Activities for Oil and

Gas Field Exploration, and 213113, Other Oil and Gas Field Support

Activities, have been combined and numbered and titled, 213112, Support

Activities for Oil and Gas Field Operations. Since geophysical mapping

and surveying has been moved to NAICS 54136, Geophysical Survey and

Mapping Services, the remaining activities in the original NAICS United

States 213112, Support Activities for Oil and Gas Field Exploration,

are too small to support a separate industry. Because of the above

change, the following industries have been renumbered: Support

Activities for Coal Mining, is now 213113; Support Activities for Metal

Mining is now 213114; and Support Activities for Non-Metallic Minerals

(except Fuels) is now 213115.

Manufacturing--NAICS subsector 337 Furniture and Related Product

Manufacturing has been revised. The new structure changes from an

emphasis on furniture manufacture by type of material, i.e., wood,

metal, and other materials, to one by type of furniture, i.e.,

household, office and other. A separate NAICS industry also was created

for kitchen cabinet and countertop manufacturing. This change better

represents the way the furniture industry is structured and is

consistent with the production principle on which NAICS is based. The

creation of many detailed furniture manufacturing NAICS industries for

the three countries was not possible, however, because the internal

structure of furniture manufacturing differs from country to country.

For example, the production of institutional furniture (furniture for

schools, libraries, etc.) combined with the production of household

furniture takes place in a significant number of establishments in one

country and does not in another; similarly, the combined production of

custom architectural woodwork and millwork and of office furniture

takes place in a significant number of establishments in one country

and does not in another.

NAICS United States 321912, Hardwood Dimension Mills, and 321913,

Softwood Cut Stock, Resawing Lumber, and Planing, are combined into

NAICS United States 321912, Cut Stock, Resawing Lumber, and Planing.

The processes used to produce the products of these industries are the

same or similar, the major difference being the use of hardwood versus

softwood. Therefore, the industries are combined. NAICS United States

339117, Eyeglass and Contact Lens Manufacturing, is combined with NAICS

United States 339115, Ophthalmic Goods Manufacturing. There is no

production

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distinction between these two industries and thus they are combined.

NAICS United States 331421 has been renamed Copper Rolling,

Drawing, and Extruding and NAICS United States 331422 has been renamed

Copper Wire (except Mechanical) Drawing. This clarifies the fact that

brass mills producing mechanical wire are included in 331421 and wire

mills producing wire are classified in 331422. Other title changes in

manufacturing are: 311225 is retitled Fats and Oils Refining and

Blending; 325188 is retitled All Other Basic Inorganic Chemical

Manufacturing; 325199 is retitled All Other Basic Organic Chemical

Manufacturing; 325221 is retitled Cellulosic Organic Fiber

Manufacturing; 32552 is retitled Adhesive Manufacturing; 32731 is

retitled Cement Manufacturing; 336322 is retitled Other Motor Vehicle

Electrical and Electronic Equipment Manufacturing; and 339911 is

retitled Jewelry (except Costume) Manufacturing.

Retail--NAICS United States 453999, All Other Miscellaneous Store

Retailers (except Tobacco Stores) is renumbered to 453998. There is no

change in the title.

Transportation and Warehousing--NAICS 48121, Nonscheduled Chartered

Air Transportation, and NAICS 48122, Nonscheduled Specialty Air

Transportation, have been combined and numbered and titled, 48121,

Nonscheduled Air Transportation. Since some of the typical activities

performed by establishments providing a combination of specialty air

transportation or flying services overlap with establishments providing

nonscheduled chartered air transportation of passengers and/or cargo,

the three countries agreed to combine these establishments into one

NAICS industry. The U.S. national industries within NAICS 48121,

Nonscheduled Air Transportation, are as follows: NAICS United States

481211, Nonscheduled Chartered Passenger Air Transportation; NAICS

United States 481212, Nonscheduled Chartered Freight Air

Transportation; and NAICS United States 481219, Other Nonscheduled Air

Transportation.

The following NAICS industry groups and industries are retitled:

4852 is retitled Interurban and Rural Bus Transportation; 48521 is

retitled Interurban and Rural Bus Transportation; 4854 is retitled

School and Employee Bus Transportation; 48541 is retitled School and

Employee Bus Transportation; NAICS United States 488112 is retitled and

renumbered 488119, Other Airport Operations; 49311 is retitled General

Warehousing and Storage Facilities; 49312 is retitled Refrigerated

Warehousing and Storage Facilities; 49313 is retitled Farm Product

Warehousing and Storage Facilities; and 49319 is retitled Other

Warehousing and Storage Facilities.

Finance and Insurance--NAICS 52593 has been retitled Real Estate

Investment Trusts.

Professional, Scientific, and Technical Services--NAICS United

States 541199 has been retitled All Other Legal Services; NAICS 54143

has been retitled Graphic Design Services; and 54182 has been retitled

Public Relations Agencies.

Management of Companies and Enterprises--NAICS United States 551113

has been renumbered 551114, Corporate, Subsidiary and Regional Managing

Offices.

Administrative and Support Services--NAICS United States 561431 has

been renumbered and retitled 561439, Other Business Service Centers

(including Copy Shops) and NAICS United States 561432 has been

renumbered 561431, Private Mail Centers.

Accommodation and Foodservices--NAICS 72233 has been retitled

Mobile Foodservices.

Other Services (except Public Administration)--NAICS United States

811121 has been retitled Automotive Body, Paint, and Interior Repair

and Maintenance and NAICS industry group 8122 has been retitled Death

Care Services.

Auxiliaries--Three private sector commentors and one State agency

objected to classifying auxiliary establishments (those establishments

that primarily produce support services not intended for use outside

the enterprise) based on their primary activity rather than maintaining

the historic SIC treatment of classifying auxiliary establishments

based on the industry classification of the establishments they

primarily serve. Two State government agencies supported the change.

Those who objected acknowledge that there are problems associated with

the 1987 SIC classification of auxiliaries, but are concerned about the

loss of employment in manufacturing industries if auxiliary

establishments such as accounting offices, administrative and corporate

offices, and warehouses are classified according to their primary

activity.

NAICS, however, is based on the economic principle that

establishments should be grouped together based on their production

processes, i.e., units that use identical or similar production

processes in producing a good or service should be grouped together.

For example, classifying a data processing services establishment of an

automobile producer that performs services for its automobile assembly

plants in the automobile industry violates that principle. The data

processing center's production process is much more like that of

establishments in NAICS 51421, Data Processing Services, than those

establishments in NAICS United States 336111, Automobile Manufacturing.

In addition, more and more of these auxiliary establishments are

selling their services to establishments outside their enterprise. For

example, the 1992 Economic Censuses reported that auxiliary

establishments had more than $142 billion in outside sales, more than

doubling the $64 billion reported in 1987. These sales are not

reflected in the industries in which they occur, but rather in the

industries that the auxiliary establishment primarily serves, thereby

understating the receipts of many service industries. Therefore, NAICS

will classify auxiliary establishments based on their primary activity.

To address the concern about the apparent loss of manufacturing

employment, the Census Bureau will code auxiliary establishments for

the 1997 Economic Censuses both by primary activity and by the industry

of the establishments they primarily serve, thereby providing a link

between the 1992 and 1997 data.

NAICS United States Implementation

The NAICS United States replacement of the SIC is effective January

1, 1997. The first data to be available on a NAICS United States basis

will be from the 1997 Economic Censuses to be published in early 1999.

For most programs, data will be introduced over several years. Data

series may not always be revised for years before the respective

program's implementation of NAICS United States.

INEGI, OMB, and Statistics Canada have put in place a process for

ensuring that the implementation of NAICS is comparable across all

three countries. Regularly scheduled meetings among the three countries

will ensure that there is a smooth transition to NAICS in all three

countries. In addition, the three countries plan to continually review

and update NAICS to ensure that new activities are promptly recognized

and to extend NAICS to the 5-digit industry level in those sectors

where agreement is now at only the sector, subsector, or industry group

level.

[[Page 17294]]

Time Series Continuity

The standard approach to preserving time series continuity after

classification revisions is to create linkages where the series break.

This is accomplished by producing the data series using both the old

and new classifications for a given period of transition. With the dual

classifications of data, the full impact of the revision can be

assessed. Data producers then may measure the reallocation of the data

at aggregate industry levels and develop a concordance between the new

and old series for that given point in time. The concordance creates a

crosswalk between the old and new classification systems. This link

between the 1987 U.S. SIC and the 1997 NAICS United States will be

developed by the statistical agencies in the U.S.

NAICS Nonstatistical Use

NAICS was designed, as was the SIC before it, solely for

statistical purposes. Although it is expected that NAICS, like the SIC,

will also be used for various nonstatistical purposes (e.g.,

administrative, regulatory, or taxation), the requirements of

government agencies that use it for nonstatistical purposes have played

no role in its development.

Consequently, as has been the case with the SIC (Statistical Policy

Directive No. 8, Standard Industrial Classification of Establishments),

NAICS shall not be used in any administrative, regulatory, or tax

program unless the head of the agency administering that program has

first determined that the use of such industry definitions is

appropriate to the implementation of the program's objectives. If the

terms, ``North American Industry Classification System,'' ``NAICS,'' or

``NAICS United States'' are to be used in the operative text of any law

or regulation to define industry (or trade or commerce), language

similar to the following should be used to assure sufficient

flexibility: ``An industry or grouping of industries shall mean a North

American Industry Classification System industry or grouping of

industries as defined by the Office of Management and Budget subject to

such modifications with respect to individual industries or groupings

of industries as the Secretary (Administrator) may determine to be

appropriate for the purpose of this Act (regulation).''

1997 NAICS United States Industry Structure and Relationship to

1987 SIC

Table 1 below presents the final decisions for the entire structure

of the 1997 NAICS United States classification system including both 5-

digit NAICS and 6-digit NAICS United States national detail industries.

It shows the hierarchy and the coding system in 1997 NAICS United

States sequence; it also relates the 1997 NAICS United States to the

1987 U.S. SIC.

Table 2 is in 1987 U.S. SIC sequence and relates the 1987 U.S. SIC

industries to the 1997 NAICS United States including the 6-digit U.S.

national detail industries. All OMB final changes to the structure of

the 1997 NAICS United States based on public comment and consultation

with the ECPC, INEGI, and Statistics Canada are included in Tables 1

and 2.

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Sally Katzen,

Administrator, Office of Information and Regulatory Affairs.

[FR Doc. 97-8101 Filed 4-8-97; 8:45 am]

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