Standard industrial classification

3 key takeaways

• SIC codes categorize industries to facilitate data analysis.
• These codes are widely used for statistical and regulatory purposes.
• SIC codes help businesses identify their primary industry.

What is Standard Industrial Classification?

The Standard Industrial Classification (SIC) system is a method used to classify industries by assigning them a four-digit code. These codes group industries based on their primary business activities, allowing for systematic data collection, analysis, and reporting. The SIC system was established in the United States in the 1930s and has been used extensively by government agencies, businesses, and researchers to organize and analyze industry data.

SIC codes are used to streamline the process of collecting and analyzing economic data. They help in understanding the structure of the economy, identifying trends, and making informed decisions. For example, SIC codes are used in the compilation of economic censuses and surveys, ensuring that data is consistently categorized across various sectors.

How does the SIC system work?

The SIC system uses a hierarchical structure to classify industries. The four-digit codes are organized into different levels:

1. Major groups: The first two digits represent the major industry group. For example, SIC code 20 represents the manufacturing sector.
2. Industry groups: The third digit specifies the industry group within the major group. For instance, SIC code 201 denotes the meat products industry within the manufacturing sector.
3. Industry codes: The fourth digit provides a more specific classification, identifying particular industries. For example, SIC code 2011 is used for meatpacking plants.

This hierarchical approach allows for detailed categorization and analysis of economic activities, making it easier to compare data across different industries and regions.

Uses of SIC codes

SIC codes serve multiple purposes across various fields:

• Statistical analysis: Government agencies and researchers use SIC codes to compile and analyze economic data, track industry trends, and report on economic conditions.
• Regulatory compliance: Many regulatory bodies require businesses to provide their SIC codes when filing reports or applying for permits, ensuring that activities are correctly classified.
• Market research: Companies use SIC codes to identify their primary industry, conduct market analysis, and benchmark performance against industry standards.

Examples of SIC codes

Here are a few examples to illustrate the SIC system:

• SIC 5812: Eating places, such as restaurants and cafes.
• SIC 7372: Prepackaged software, including companies developing and selling software products.
• SIC 1389: Oil and gas field services, not elsewhere classified, covering various support services for oil and gas extraction.

Transition to NAICS

While the SIC system has been widely used, it has largely been replaced by the North American Industry Classification System (NAICS) in recent years. NAICS offers more detailed and updated classifications, reflecting changes in the economy and technological advancements. However, SIC codes are still in use and provide valuable historical data for industry analysis.

Understanding the Standard Industrial Classification system is essential for navigating industry data and ensuring accurate classification of business activities. For further exploration, you might look into the North American Industry Classification System (NAICS), economic data analysis, and industry benchmarking techniques.