More U.S. economic data series incorporate the North American Industry Classification System - Focus on Statistics

Business Economics, April, 2003 by Robert P. Parker

Two previous articles in this column have reviewed the status of the incorporation by Federal statistical agencies of the North American Industry Classification System (NAICS) to replace the Standard Industry Classification System (SIC).' This article describes the incorporation of NAICS last December by the Federal Reserve Board (FRB) into the industrial production and capacity utilization indexes and by the Bureau of Economic Analysis (BEA) into the benchmark 1997 input-output accounts. The article also provides information on the forthcoming incorporation of NAICS by the Bureau of Labor Statistics (BLS) into the payroll, employment, and other series and reports on a newly available NAICS-based BLS state and county quarterly employment and wage series. This article also reports on the latest developments in future changes to NAICS

Industrial Production and Capacity Utilization Indexes

In December, the FRB released a historical revision of the industrial production (IP) and capacity utilization indexes that featured the incorporation of the 2002 NAICS. (2) The revision also updated all industry production and capacity utilization measures to incorporate newly available and more comprehensive source data for recent years and introduced improved methods for measuring the annual real output of communications equipment manufacturing, beginning with 1987. Along with the updating, all production and capacity indexes are now expressed as percentages of output in 1997; the previous comparison base was 1992. The rebasing affects all series from their start dates, which is 1919 for total IP and manufacturing IP, 1948 for manufacturing capacity, and 1967 for total industrial capacity. In addition, series for the major IP market groups (such as consumer goods and business equipment) and for the aggregates of industry utilization rates grouped by stage-of-process (advanced and primary processing) were i mproved. (3)

Although NAICS has been introduced into many other Federal data series, the introduction of NAICS into the FRB's series was unique in several ways. First, the basic industry coverage of the total and manufacturing IP, capacity, and capacity utilization measures was not affected by the introduction of NAICS because the replacement of the SIC system resulted in no material revisions to total and manufacturing IP, capacity, and capacity utilization measures. Second, the NAICS component industry statistics were prepared on a consistent basis beginning with 1972. The main impetus for the FRB's effort to provide consistent scope and historical continuity was to preserve business cycle analysis, research, and forecasting with industrial production and capacity utilization. In addition, consistency of these measures was further improved by recompiling the indexes using current methods-in so far as possible- back to 1972. Many of these methods were introduced in the historical and annual revisions issued in the 1990s and in 2000 and 2001.

The third unique aspect of the FRB's introduction of NAICS was the preparation of consistent series using a technique based on microdata records of manufacturing establishments to estimate the detailed industry components classified according to NAICS. (4) In contrast, the major economic indicators prepared by the Bureau of the Census incorporated NAICS on a consistent basis beginning with 1992 and were based on both microdata and aggregate establishment data and constant SIC/NAICS ratios. (5) The construction of the individual industrial production and capacity utilization series on a NAICS basis beginning with 1972 mainly reflects the results of a research project conducted by FRB staff and staff of the Center for Economic Studies of the Bureau of the Census. The project developed NAICS codes for each establishment in the microdata files of seven Censuses of Manufacturers--1963, 1967, 1972, 1977, 1982, 1987, and 1992. (The Census Bureau had prepared the data for the 1997 Census of Manufactures on both a SIC and NAICS basis.) The dual coding made it possible to use the microdata to create variable SIC/NAICS ratios and derive NAICS-based industry source data for industrial production and capacity utilization. The derivation of these NAICS-based source data was an extensive effort, involving the reconstruction of many of the working data sets that underlie the estimation of industrial production and capacity, including the annual comprehensive estimates of industry value added and value of production, and the annual (fourth quarter) survey data for industry utilization rates. Annual estimates for most variables reported in the Censuses and Annual Surveys of Manufactures (shipments, value added, cost of materials, inventories, capital spending, production worker hours, and the like) were derived at the six-digit NAICS level beginning with 1972. Utilization rates from the Survey of Plant Capacity were reconstructed beginning in the fourth quarter of 1974, the first year of the survey.

Although the FRB still defines the industrial sector as manufacturing, mining, and electric and gas utilities, the changes from the SIC system to NAICS altered the industry composition of manufacturing. Specifically, NAICS changed manufacturing by moving the logging and the newspaper, periodical, book, and directory publishing industries from manufacturing to other sectors: logging was placed in agriculture, and the publishing industries were placed in the new information sector. For the statistics reported in the FRB's monthly G.17 statistical release, the manufacturing measures will continue to comprise those industries included in the NAICS definition of manufacturing plus the logging and newspaper, periodical, book, and directory publishing--industries that have traditionally been considered to be manufacturing.