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NAICS Codes 101: Understanding Industry Classification with IMPLAN

July 3, 2024 by Chandler West

When you’re delving into economic analysis, you'll often encounter North American Industry Classification System (NAICS) codes. NAICS codes (pronounced like “snakes” without the “s”) are essential for categorizing businesses and understanding economic data. 

In today’s blog, we’ll break down what NAICS codes are, how they correspond with IMPLAN sectors, and why they matter for your economic impact analysis.

What are naics Codes?

NAICS codes are a standardized system used by the U.S. government, Canada, and Mexico to classify businesses into industries. NAICS codes replaced The Standard Industrial Classification (SIC) system. They change every five years. Each Industry is represented by a six digit code which can be aggregated into broad economic sectors.

  • Two-digit codes represent general sectors of the economy (e.g., 31-33 for Manufacturing).
  • Three-digit codes break down these sectors into various subsectors.
  • Four-digit codes provide even more detailed industry groupings.
  • Five- and six-digit codes offer further specificity, pinpointing specific industries and their specializations. 5-digit codes are used internationally between North American countries, while 6-digit codes are nationally specific - e.g. the United States.

Why are naics Codes Important?

1. Consistency and Comparability: Using NAICS codes ensures that your economic analysis aligns with standardized industry definitions, making your findings comparable with national and regional data.

2. Detailed Analysis: NAICS codes allow for detailed industry analysis, essential for accurate economic modeling and impact studies.

3. Policy and Decision Making: Policymakers and businesses rely on NAICS-based data for making informed decisions about resource allocation, economic development strategies, and market analysis.

How Naics Codes Align with IMPLAN

IMPLAN uses its own set of industry codes for U.S. data, most of which can be bridged to NAICS codes. This alignment allows users to accurately map economic data from government sources to IMPLAN’s economic models. This correspondence ensures that data on employment, output, and other economic variables are consistently categorized and analyzed.

Navigating IMPLAN's NAICS Correspondences

Choosing the correct IMPLAN Industry is vital to an accurate analysis. IMPLAN Industry  schemes are based on BEA sectoring, which groups together NAICs codes based on similar goods and services requirements, compensation rates, profits, taxes etc. 

Understanding NAICS codes and their relationship with IMPLAN Industries is foundational for accurate economic impact analysis. These codes provide a standardized way to categorize businesses, ensuring consistency and comparability across different data sources and studies. By leveraging the detailed correspondences provided by IMPLAN, users can enhance the accuracy and reliability of their economic analyses, ultimately supporting better decision-making and policy development.

For more detailed information on IMPLAN and NAICS correspondences, you can refer to this IMPLAN support article. If you have any further questions, feel free to contact our support team or explore our extensive resources and guides on the IMPLAN support site.

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Topics: Data, Economics, Technology, Methodology


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