Delaney O’Kray-Murphy, EBRC research economist
In the Arizona jobs data, retail trade was most impacted
In September 2022, with the full data release of the first quarter Quarterly Census of Employment and Wages (QCEW) data, the US Bureau of Labor Statistics (BLS) began the transition from 2017 North American Industry Classification System (NAICS) codes to the 2022 version. With the release of the January 2023 data on March 13th, 2023, the Current Employment Statistics (CES) State and Area division similarly revised their data to the 2022 NAICS to reflect growing industries and sectors more accurately. The revision includes 223 NAICS code changes, 15 title changes, and one new industry addition: Compost Manufacturing. More detailed information on these changes is available on the United States Census Bureau website. The NAICS divides the economy into 21 sectors and 1,030 industries in the 2022 version, including an unclassified industry designation (NAICS 999999). The code changes affected around 23% of the entries in the NAICS, targeting a diverse range of industries from quarrying to paper mills to commercial light fixtures and beyond.
In July 1994, the White House Office of Management and Budget (OMB) announced its plan to develop a new industry classification system to unite all North American countries under a single standard, now known as NAICS. The classification system observed four guiding principles throughout its development: a production-oriented or supply-based framework; increased attention to developing classifications for new and emerging industries, service industries, and industries engaged in the production of advanced technologies; time continuity; and compatibility with the two-digit level of the International Standard Industrial Classification of All Economic Activities (ISIC) of the United Nations.
The production-oriented framework facilitates the collection and disbursement of input and output information for statistical operations that require both. While other sections of the government that deal with administration, regulation, and taxation utilize NAICS to classify their activities, they have no role in its development or subsequent revisions. However, reclassified industries want to register the change, as it may affect how different entities file taxes and how much they owe.
The three North American countries first implemented NAICS in 1997, replacing the Mexican Classification of Activities and Products (CMAP) and the Standard Industrial Classification (SIC) of the United States and Canada. Since its inception, the three countries have collaborated every five years to revise the NAICS to reflect new or emerging industries and remove obsolete ones. The NAICS 2022 update represents the continuing collaboration between Statistics Canada, Mexico’s Instituto Nacional de Estadística y Geografía (INEGI), and the Economic Classification Policy Committee (ECPC) of the United States, to create a unified North American economic classification system. While these three countries collaborate in the periodic updates, numerous distinctions in 4 to 6-digit classifications persist across borders. The NAICS not only affects designations within North American industries but also brings increased effort for further convergence with the various global industry classification systems. Future revisions will continue this effort to expand comparability.
In February 2020, the OMB published a notification of potential revision for 2022, soliciting input on emerging industries, the current treatment of online shopping, and the creation of internet content. After considering the proposals received and discussing changes with Statistics Canada and INEGI, the ECPC cultivated a set of recommended changes in July 2021, again soliciting comments from the public. After the OMB reviewed comments and consulted with industry groups and data users, they adopted all the ECPC recommendations from the July notice. The record of the exact adjustments for the year and more detailed methodology information is available in the 2022 NAICS Manual.
The NAICS 2022 revisions contained five types of changes: Direct, Direct+, Consolidated, Split, and Removal. Direct and Direct+ adjust the numbering of an industry NAICS code, but the Direct+ changes are not necessarily 1 to 1. Consolidated and Split changes create opposite effects, with the former grouping several codes into a singular new one and the latter dividing a single code into several. Lastly, removal changes eliminate old or unnecessary designations. The BLS introduction of the NAICS 2022 industry coding contains more detailed information about these types of change and the affected population sizes.
The 2022 NAICS changes produced the largest group of alterations in the last decade, affecting about 2.56 million establishments nationally and 17.25 million jobs with the five types of changes. In comparison, the 2012 revision had four types of changes that affected 698,000 establishments and 12 million jobs, and the 2017 revision had three types of changes that affected 689,000 establishments and 5.3 million jobs. Overall, the 2022 adjustments affected more workers and establishments than the two prior alterations.
Exhibit 1 displays the NAICS adjustments found in the nonfarm payroll employment tables from the Arizona Office of Economic Opportunity. The U.S. Census Bureau Website contains a full catalog of all name and industry shifts.
Exhibit 1: 2017 to 2022 NAICS Changes for Retail Trade; Education and Health Services
The 2022 revisions remove the lines between in-person and online activity in several areas. Notably, the shift from Clothing and Accessories to Clothing, Jewelry, and Shoes increased the number of subcategories to identify different accessories while combining in-person and online shopping. Similar changes occurred across various general merchandise retailers. Before these changes, internet purchases and direct sales occupied separate categories, making tracking them more difficult. The furniture and home furnishings category also experienced these adjustments, transforming into furniture, electronics, appliance. The new designation combines furniture and electronics, which previously fell under separate categories, as well as combining online and in-person sales. These revisions additionally removed the lines between online and paper media production, focusing more on the type of media rather than the source. Some generalizations also occurred across the new NAICS codes, with several automotive repair codes moved into specialized automotive repair and some consumer electronic repair designations combined. Lastly, names across industries saw adjustments that indicated either a growth in products/ services offered by a specialization (lab services to lab and testing services) or an increase in clarity (nothing changes, but a highlighted distinction between it and other similar groups).
The shift from Educational Services to Private Education Services exemplifies a clarifying change, primarily delineating private and public education employment. Public education employees are classified in Government.
Keywords: North American Industry Classification System, NAICS, Arizona jobs, Arizona industries, U.S. industries
