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.
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
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.
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
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
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
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
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
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.
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:
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
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
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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