STANDARD INDUSTRIAL
CLASSIFICATION SYSTEM (SIC)



The Standard Industrial Classification (SIC) system is a hierarchical coding structure developed by the U.S. government and used widely in govemment and private-sector data. It attempts to classify all forms of economic activity—including government and nonprofit entities—in order to provide a common statistical and conceptual framework for data collection and analysis. Most commonly this involves associating a particular company with one or more SIC codes based on the activities it performs; company data aggregated under SIC categories is said to describe an industry. Although it is gradually being replaced by a new classification tool called the North American Industry Classification System (NAICS), the SIC system is still widely used in both current and historical contexts.

BACKGROUND

The SIC system traces its roots to the New Deal era, when the Interdepartmental Committee on Industrial Classification was established in 1937 to develop a classification system. It released its first classification of manufacturing industries in 1941, followed by a non-manufacturing classification in 1942. Revisions were made to the system in 1958, 1963, 1967, 1972, 1977, and 1987, the last version. These periodic changes were intended to keep pace with changes in the economy so that the system would recognize significant new categories and eliminate ones for trades that were nearly extinct. With inputs from such datagathering agencies as the U.S. Census Bureau and the Bureau of Labor Statistics, the Office of Management and Budget oversaw the latter revisions of the system.

THE STRUCTURE

The SIC system uses letters and digits to represent the hierarchy and relation among categories of economic activity. Although they are often omitted from data using SICs, the letters A through K define the broadest categories in the system, called divisions:

  1. Agriculture, forestry, and fishing
  2. Mining
  3. Construction
  4. Manufacturing
  5. Transportation, communications, and utilities
  6. Wholesale trade
  7. Retail trade
  8. Finance, insurance, and real estate
  9. Services
  10. Public administration (government)
  11. Nonclassifiable establishments

Within these divisions, in descending hierarchical order, are two-digit (known as the major group), three-digit (known as the industry group), and four-digit (known as the industry) classifications that progressively narrow the scope of the category. For example:

48 Communications

481 Telephone communications

4812 Radiotelephone communications

The four-digit level is considered the most specific; although some government agencies and private database services have created more elaborate systems detailed to six or eight digits, these aren't considered part of the official classification. Sometimes trailing zeros are used at the two- and three-digit levels to round the codes out to four digits, as in "4800," another unofficial adaptation. No official four-digit SIC code ends with zero. There are approximately 1,000 official four-digit categories.

USAGE

Four-digit SICs are officially assigned on what the system terms an "establishment" basis, that is, at each physical location of a company. Thus, if a company has a headquarters, a manufacturing plant, and a distribution center, each might be assigned a different SIC code based on their activities. For locations involved in more than one line of business, and for corporate headquarters in general, one four-digit primary SIC is assigned based on the activity from which the company derives the greatest revenue. In SIC language, this company is said to be "principally engaged" in that activity, even if it represents a minority of sales. Secondary SICs may also be recorded. The U.S. government attempts to classify every establishment in the country using these principles, but the official classification of any particular firm is considered confidential and not disclosed to the public.

While government disclosure of a company's SIC is normally forbidden, there are no restrictions on dissemination by the private sector. Indeed, there are company databases sold to the public containing literally millions of company SICs and other information. Popular usage again deviates somewhat from government specifications. Database publishers and information services routinely compile and sell company data that include one or more SICs based on all of a company's activities or those it is best known for.

Frequently, a company's appropriate SIC can be readily learned from a simple description of what it does and a glance through a table of SIC codes. Thus, if one knows that General Motors Corporation is primarily an automobile manufacturer, one may be assured that SIC 3711: Motor Vehicles and Passenger Car Bodies is GM's primary SIC code.

Company information, particularly financial statistics, is also often combined within SIC categories to produce industry-level data. One of the most important publications to offer such data—and arguably one of the most important publications using SICs—had been the economic census taken every five years by the Census Bureau. Within the census, which occurs in years ending in two and seven, separate and voluminous documents, such as the Census of Manufactures, were produced for all of the major divisions of the SIC. However, as of the 1997 census, the SIC organization was beginning to be phased out in favor of NAICS. All previous data from the census were presented in SICs.

THE FUTURE OF THE SIC

Most observers concede that the SIC system is slowly growing obsolete because of the introduction of NAICS. Still, a large body of historical and timeseries data exists in SIC categories, and the transition to NAICS codes from SIC codes in new publications, from both the public and the private sector. Some government agencies and commercial publishers have developed so-called bridge tools that cross-reference data in NAICS categories with equivalent SICs. Others simply use both systems side by side, and a few commercial organizations made no immediate plans to convert to NAICS. Thus, the transition was expected to continue into the early 2000s, and even then SICs were unlikely to be eliminated altogether because there was little chance of all historical data using SICs being republished in NAICS versions.

While NAICS is the primary heir to the legacy of the U.S. SIC system, several similar classification schemes are used to organize economic and trade data. Among these are the Standard International Trade Classification (SITC), a United Nations-sanctioned system used to classify merchandise; the Harmonized System (HS), a highly detailed product classification also used by the United Nations and national governments to categorize merchandise trade; and the International Standard Industrial Classification (ISIC), is another industry-based system developed under the aegis of the United Nations.

SEE ALSO : North American Industry Classificaiton System

FURTHER READING:

North American Industry Classification System - United States, 1997. Washington: GPO, 1998. Available from www.ntis.gov .

Standard Industrial Classification Manual 1997. Washington: GPO, 1987. Available from www.ntis.gov .



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