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March 21, 2003

NAICS Arrives in Indiana

The timing could have been better, to be sure. As these words are written, we are entering an armed confrontation abroad, sparked in part by a new terrorist threat to our security. And the days of the go-go economic growth that gave many of us all a giddy sense of prosperity are at least two years behind us now.

But even if it's been pushed out of the limelight by circumstances that no one could have predicted, it's still big news. NAICS has arrived in Indiana.

What the heck is NAICS? It's a new system of classification of industries that is now the standard for the three major economies on the North American continent. It's all spelled out, in crisply written bureaucratic prose, in a 1247-page hardcover volume that's coming to bookstores near you.

OK, maybe that's going too far. Only a few pointy-headed economists and statisticians are ever likely to crack the cover -- much less read -- the manual describing the North American Industry Classification System. But given that the old system it replaces -- the SIC, or Standard Industry Classification, codes -- has been around since the late 1930's, you can still appreciate that this is not something that happens all the time.

Even though the arrival of NAICS is occurring exactly on time according to the schedule put out by its designers in the Bureau of the Census, in a real world sense, it is at least five years too late. In the last half of the 1990's, with the information economy exploding all around us, the SIC method of keeping score on economic activity was simply not up to the task. Researchers took to the field to try to achieve a much-needed understanding of the high tech economy, and found the data documenting its existence wanting.

In a nutshell, NAICS reflects a fundamental economic reality. That is, most of us are employed in the production of services, not goods. We move from a system that contained a wealth of detail on manufacturing, but largely confined services industries to a small number of categories, to one that embraces the widely divergent nature of what we used to simply call services. Thus we can now talk about the world of information services, business and professional services, and leisure and hospitality services that employ so many American workers today.

We will outgrow NAICS someday as well, but for now, it's like a breath of fresh air to those of us who track the economy. And  thanks to the hard work of the statisticians at Indiana's Department of Workforce Development, we have a new way of looking at the economies in major cities around the state.

The data are new, but the economy hasn't changed. Indiana is still suffering the effects of the 2001 recession, and no reclassification can change that story. The dominant force of the manufacturing sector in our state's economy, especially in cities like Kokomo and Elkhart, is also an unchanging theme.

But when it comes to a brand new sector, like Information Services, there is no old script to follow. Alas, its share is a tiny one across the entire state, accounting for less than 2 percent of total employment even in cities like Evansville and Indianapolis, where its presence is largest. The much larger classification of Professional and Business services has the largest piece of the employment pie in those two cities as well.

The language of economic analysis has been permanently altered with the demise of the SIC's and the ascendancy of NAICS. If we had better data on the "new" economy a few years earlier, perhaps we could have been able to think a bit more rationally about what it could and could not deliver.

Link to this commentary: https://commentaries.cberdata.org/378/naics-arrives-in-indiana

Tags: economic recovery


About the Author

Pat Barkey none@example.com

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.

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