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Census Bureau

Implications of Implementing NAICS in the Current Services Program


The North American Industry Classification System (NAICS) is the first-ever uniform system of North American industry classifications. It replaces the 1987 Standard Industrial Classification (SIC) system that has been used by the United States since the 1930's to present statistical information. NAICS was developed by the Economic Classification Policy Committee (ECPC) of the United States, on behalf of the Office of Management and Budget, in cooperation with Statistics Canada and Mexico's Instituto Nacional de Estadística, Geografía e Informática (INEGI) to provide a consistent framework for the collection, analysis and dissemination of industry statistics used by government policy analysts, academics and researchers, the business community, and the public.

NAICS first will be implemented at the Census Bureau in the 1997 Economic Census. Establishments included in the census will be assigned a NAICS code based on information reported in the Census. The first information available from the census, the Advance Report, is scheduled to be released during the first quarter of 1999. That publication will present information at the NAICS 3- and 4-digit level for all sectors covered by the census. Data also will be shown on an SIC basis at the 2- and 3-digit level for all sectors. Preliminary and final census reports will be released beginning the 1st quarter of 2000 and continue through the 1st quarter of 2001 when final reports that include bridge tables linking NAICS to the SIC will be released. A copy of the Census publication time schedule is shown in Attachment A.

The Economic Census provides the sampling frame for the current services surveys. Every five years after the completion of the census, new samples are drawn to ensure that the most accurate, reliable information is published in the current surveys. In addition, most small and medium-sized firms are replaced each five years so that the reporting burden is spread among the universe population.

The Current Services Program

Currently, there are three monthly and two annual surveys canvassing the retail/wholesale sectors and three annual surveys conducted to measure the remaining services economy. Following is a brief description of each:

Retail Sales

The retail sales program is designed to provide an early indication of the monthly sales of retailers. The Advance Monthly Retail Sales Survey, which shows retail sales by selected 3-digit industries, is released nine working days after the end of the month and is one of the many economic indicators published by the Census Bureau. Approximately 3500 firms are asked to report sales three days after the end of the month. In addition, a larger sample of retailers (approximately 13,000) are asked to report monthly retail sales and inventories. These data are issued about 45 days after the end of the calendar month and are used to benchmark the advance report. Finally, an annual report that includes about 24,000 retailers provides for more information on the retail industry and is used as a benchmark for the monthly series.

Wholesale Trade

Merchant wholesalers are surveyed each month to provide monthly estimates of sales and inventories for wholesale trade. The inventory data published in this report are an important component of the Gross Domestic Product (GDP) estimates produced quarterly by the Bureau of Economic Analysis. Approximately 3400 wholesalers are canvassed monthly and 6200 annually. The annual survey provides a benchmark for the monthly series.

Service Annual Survey

About 33,000 service industry businesses are canvassed in the Service Annual Survey. Included are companies that primarily provide services to individuals, businesses, and governments. Data collected include tax and organizational status; operating receipts; sources of receipts and expenses by type for a select few industries; operating expenses for tax-exempt firms; and selected industry-specific items.

Annual Survey of Communication Services

The Annual Survey of Communications Services includes about 2000 communication firms. This survey covers one of the most important and rapidly changing industries in the U.S. economy. All firms with payroll that provide telephone communication, radio and television broadcasting, cable television and other communication services are eligible for selection for this survey. Data collected include total revenue and revenue by source; total expenses and expenses by type; number of locations by kind of business; and industry specific inquiries such as telephone communication revenue by type of user and number of cable subscribers.

Transportation Annual Survey

Finally, a survey covering commercial motor freight transportation and public warehousing services is conducted. Approximately 2500 firms are asked to report information on operating revenue by source; expenses by type; percentage of motor carrier freight revenue by commodity type, size of shipments handled, length of haul, and shipments' country of origin and destination; and vehicle fleet inventory.

NAICS will be implemented in the Current Services program beginning with the annuals for data year 1999. Information will be collected for both 1998 and 1999 to ensure a consistent NAICS time series from 1997 forward. Plans are to implement NAICS in the monthly program either in late 2000 or early 2001. This work must be coordinated with the Manufacturers Shipments, Orders, and Inventories (M3) survey to ensure that manufacturing

and trade inventories are converted to NAICS at the same time. A detailed implementation schedule for all U.S. statistical agencies is shown in Attachment B.

Services in NAICS

One of the major objectives of NAICS was to update and expand the number of service sectors and industries recognized in the economic classification systems of the NAFTA signatories. Eight new NAICS sectors are recognized, expanding the number of service oriented sectors from four in the SIC to eleven in NAICS. Division I, Services, in the 1987 SIC no longer exists; rather industries from that 1987 SIC Division are reaggregated into eight new NAICS sectors organized by their production processes. For example, the Professional, Scientific, and Technical Services sector is comprised of industries where human capital, that is, the knowledge and skills of the employees, is the organizing principle. The Arts, Entertainment, and Recreation subsector includes establishments that are organized to provide entertainment and recreation for their patrons. A new Information sector brings together those establishments that (1) produce, manipulate and distribute information, (2) provide the means to transmit or distribute these products (other than through the traditional wholesale or retail channels) as well as data or communications, and (3) process data or transactions.

NAICS also redefines the boundaries of wholesale and retail trade. In the 1987 SIC, the differentiation between the two divisions was based on class of customer. Those establishments that primarily sold goods to other businesses were classified as wholesalers while those establishments that primarily sold goods for household consumption were categorized as retailers. NAICS recognizes the many changes in the distribution of goods over the past few years, particularly in the office supply, computer sales, and home building and materials industries and the difficulty that establishments encountered in providing information on class of customer. Superstores and other innovations in selling merchandise necessitated a rethinking of the traditional method used to distinguish retailers from wholesalers.

The new NAICS definition of retail versus wholesale emphasizes what the establishment does, rather than to whom it sells. Retailers are defined as those establishments that sell merchandise, generally without transformation, and attract customers using methods such as advertising, point-of-sale location, and display of merchandise. A store retailer has a selling place open to the public; merchandise on display or available through sales clerks; facilities for making cash or credit card transactions; and services provided to retail customers.

Wholesale establishments, on the other hand, are primarily engaged in selling or arranging the purchase or sale of (a) goods for resale, (b) capital or durable nonconsumer goods, and (c) raw and intermediate materials and supplies used in production. Wholesalers normally operate from a warehouse or office and are characterized by having little or no display of merchandise. In addition, neither the design nor the location of the premises is intended to solicit walk-in traffic. Wholesalers also do not normally use advertising directed to the general public.

Another major change to the definition of retail trade is the movement of restaurants from retail trade to a new sector called Accommodations and Foodservices. Restaurants account for about ten percent of retail sales, a significant contribution to the total retail sales figure released each month.

Attachment C compares the 1987 SIC Divisions and the 1997 NAICS sectors.

In addition to recognizing new NAICS sectors for services, the new classification also recognizes new service industries. While service producing industries comprise approximately 75% of GDP in the U.S., less than half of the industries included in the 1987 SIC were service producing industries. In NAICS, over 150 new service industries are recognized including software publishing, paging, cellular and other wireless telecommunications, satellite telecommunications, HMO medical centers, diagnostic imaging centers, casino hotels, full-service restaurants, and limited-service restaurants. In addition, industries such as newspaper and book publishing, traditionally considered manufacturing industries, are now included in the information sector of the new classification system.

Probably the largest and fastest growing of all service industries recognized in the 1987 services sector was SIC 7389, Business Services, Not Elsewhere Classified. Activities as diverse as wigmaking and telemarketing were included in this industry. Also included in SIC 7389 were sound recording studios; industrial design and interior design services; credit card services; and private mail services and business service centers. In all, 27 new NAICS industries were created from the activities formerly included in SIC 7389.

All of these changes and many more not detailed above will have a significant impact on the current services statistics program of the Bureau. Decisions on what surveys to conduct, their frequency, and content must be made shortly. Time series must be reconstructed for the monthly surveys to allow for the seasonal adjustment of data needed for useful analysis by policy makers. Over the past several years, the Bureau has undertaken a program to expand and improve its services statistics, and now it seems that a major overhaul will be necessary to implement NAICS. It is that redesign on which we seek your comments and advice.

Redesigning the Current Services Program

As always, resources for conducting the current services programs are limited. While budget initiatives have been developed to implement NAICS in the current programs and improve the estimates for GDP, evidence from the past suggests that additional funds will not be forthcoming. In fact, the budget for current programs has remained flat over the past few years and we are not hopeful that any significant increase in these funds will be approved in this future. Therefore, it will be necessary to prioritize the surveys to be conducted and the information to be included in the surveys.

Wholesale and Retail Trade Monthly Surveys

The economic indicator surveys, monthly wholesale trade and retail sales, are probably the most critical and sensitive surveys to be affected by NAICS. The data from these surveys are crucial components of the GDP and are used extensively by policy makers in determining economic policy.

The redefinition of wholesale/retail mandates a fresh look at the scope and composition of these surveys. With the sample revision now scheduled for 2000, we will begin defining retail and wholesale establishments based on what they do rather than to whom they sell. It is not yet known what the impact will be on total retail sales of this redefinition, but we do believe that for some of the industry detail, it will be significant, certainly significant enough to impact the seasonal factors. Research is just beginning on methods to establish the time series necessary to construct seasonal factors. Questions such as how far back in time it will be necessary to develop data and how to develop that data will be answered over the next several months.

It is also important to remember that NAICS retail sales excludes the sales of restaurants that are now part of a new sector, Accommodation and Foodservices. Questions remain as to whether to continue to collect information monthly on restaurants and whether or not to add accommodations to the monthly program to ensure complete coverage of the new sector. At ten percent of retail sales as defined in 1987, restaurants follow only automotive dealers, grocery stores, and department stores in its contribution to retail sales. On the other hand, receipts of accommodation establishments totaled $86.3 billion in 1995 (as published in the 1995 Service Annual Survey), about 1/3 of the total for restaurants.

Annual Service Program

A number of different options are available with the annual services program. We believe that a top priority should be the establishment of an annual information survey. This survey would replace the current Annual Survey of Communication Services and incorporate industries from the Service Annual Survey. Those industries, now covered as part of the Services Annual Survey, that would be moved to the new Information survey include Motion Picture and Video Industries, Sound Recording Industries, Information Services, and Data Processing Services. Publishing, now covered in the Annual Survey of Manufactures, also would be included in this new survey.

Statistics currently available for both the communications and publishing industries are much more detailed than for the other industries included in this new sector. In fact, many of the NAICS industries in the Information sector have never before been separately identified and are buried in not elsewhere classified industries in the SIC. As we identify these industries in the economic census and move to cover them in the current program, time series breaks for service industry data are inevitable. There is no way to reconstruct data for many of these industries; a new time series will begin with 1997. Because most of these industries are new and growing, more detailed product information should probably be collected. However, determining what those products should be and the cost of collecting the information are all factors that must be carefully considered.

The scope of the transportation industries is not significantly affected by NAICS. Travel related services are moved from the transportation sector to the Administrative and Support subsector, but since these services were covered as part of the Service Annual Survey in the current program, their movement will not affect the coverage of the transportation survey. Certainly, the transportation industries in NAICS are revised to reflect a deregulated transportation industry, but those changes can more easily be carried into a redesigned transportation survey. The decision, however, to classify auxiliary establishments (those establishments primarily engaged in performing management or support services for other establishments of the same enterprise) according to their primary activity rather than to the industry of the establishment which they serve will have an important impact on the transportation sector. Many large companies own and operate their own fleet of trucks; in NAICS these operations are classified as trucking rather than manufacturing (if the establishment the trucking facility serves is a manufacturer) or retailing (if the establishment the trucking facility serves is a retailer). Likewise, warehouse facilities owned and operated by manufacturers, wholesalers, and retailers are now classified as warehouses rather than to the sector of the establishment that owns the warehouse. These auxiliary trucking and warehouse facilities will be identified in the census and are expected to be many and large. A determination must be made on whether or not to expand the coverage of the Transportation Annual Survey to include private trucking and warehousing.

Those sectors left to be covered after Information and Transportation include Professional, Scientific, and Technical Services; Administrative and Support Services, Waste Management and Remediation Services; Finance and Insurance; Rental and Leasing Services; Educational Services; Health Care and Social Assistance; Arts, Entertainment, and Recreation; and Other Services (this assumes that Accommodation and Foodservices will be covered in the monthly program). The information currently collected and shown for industries in these new sectors generally includes only total receipts, although in a few limited industries data are also collected and shown for receipts by type and expenses. Where applicable the data are split between receipts for taxable firms versus receipts for tax-exempt firms. Currently, the only sectors not covered by the Services Annual Survey that are shown above are waste management and remediation services; finance and insurance; most of real estate; and most educational services.

There are a number of alternatives related to providing information for the sectors mentioned above. Some of these alternatives are presented below:

  1. Continue the Service Annual Survey with the same coverage and detail as presently, excluding those industries that in NAICS are part of the information sector. This means that information also would not be available on a current basis for waste management and remediation services; finance and insurance; real estate; and educational services.
  2. Cover all service sector industries except those already covered in Information and Transportation, but do so on a rotating basis; that is, one-half of the industries one year and the other half the next year. Detailed information on the industries to be covered would then be collected every other year. Depending on the cost, it might be possible to collect and publish more detailed product information for these surveys if they were only conducted every other year.
  3. Target specific sectors that are most important to the economy such as health and social assistance and/or professional, scientific, and technical services and collect detailed information, including detailed information on the output of these industries, every year. Because of budgetary constraints, not all industries could be canvassed. Statistics on some industries would be available only every five years in the census.
  4. Cover all service industries not included in the information or transportation sectors, including those not currently covered. However, collect only total receipts for each industry. Costs for such a program would probably prohibit collecting any additional information. It probably also would not be possible to show data for each 6-digit NAICS industry; rather data would be aggregated at a higher level such as 4- or 5- digit.
  5. Stop collecting industry-based data for service industries, and begin, instead, a services product survey, much like the Current Industrial Reports in manufacturing. The Central Product Classification (CPC), developed and recently revised by the United Nations, could form the basis for developing the product list. Statistics Canada has decided to use the CPC as the basis for collecting output of service industries in its current services program.

Each of these alternatives must be costed out and prioritized as to their relative importance. Estimating the cost of each survey is a relatively straight forward process, but reaching agreement on the relative importance of each survey or industry is more difficult. The Australian Bureau of Statistics when confronted with the opportunity to re-engineer their services program developed the following set of criteria to be used(1):

  • Relative direct importance of the industry to the economy
  • Dependence of other industries on particular industries
  • Extent and potential for international trade
  • Rate of change taking place within the industry
  • Influence of the industry on the community
  • Significance of government activity in an industry
  • Cost of collection in a program

Based on this set of criteria, the five most important service sectors (based on the Australian classification system ANZIC) in descending order of importance were communication services; transport and storage; property and business services; finance and insurance; and education. Neither wholesale/retail trade nor health made the top five.

Within the United States, other considerations must be taken into account, foremost of these being the needs of the Bureau of Economic Analysis which uses Census data for calculation of the Gross Domestic Product and construction of the input-output tables and national accounts. Availability of information from other sources should also be an important consideration, since reporting burden of private companies is a continuing concern for the Federal government. And of course, budgetary constraints will play a major role in a redesign of the services annual program.


The implementation of NAICS is presenting unique and difficult challenges to the Census Bureau. To help meet these challenges, we have established a Current Surveys Improvement Team in the Services Division to begin exploring these issues, further refining and developing options, and eventually sponsoring one or more data user conferences to discuss these issues. However, time is growing short, and we must begin immediately to narrow our options and focus our attention on providing the most timely and relevant service industry data possible.

1. "Statistics for Services, A Discussion Paper on Improving the Availability of Statistics on Services Industries in Australia", Services Statistics Group, January 1996.

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U.S. Census Bureau, last updated  2/19/98