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Vital Statistics For The Real Life Economy

News: Analysis & Commentary: ECONOMICS


The feds are changing the way they classify industries

For years, the government's economic statistics have been attacked as out of touch with today's economy. And no wonder--all the official employment data and other economic numbers have been collected according to the Standard Industrial Classification, or SIC, a system that originated in the 1930s and looks it. It was easy to find employment data for 31 different apparel industries. Meanwhile, the entire shrink-wrapped software industry was squished into one category.

Now, Washington's much maligned bean-counters are moving into the 1990s. Starting with the 1997 Economic Census, which is being mailed to 5 million companies, the government is switching to a new way of classifying industries. Called the North American Industry Classification System (NAICS), it includes information on more than 300 new industries, from satellite communications to casinos to nail salons, while grouping new and existing industries into more useful sectors (table). Eventually, virtually all official data--employment, wages, sales, capital investment, profits--will be available for the new sectors and industries.

The advantages of this change are clear. Although the SIC had been patched several times over the years, it "no longer accurately reflected what is happening in the economy," says Carole Ambler, a Census Bureau economist who is coordinating the NAICS effort. NAICS will offer enormous amounts of new information on high-tech and other growth areas, a boon to policymakers, economists, executives, and anyone else trying to navigate the New Economy.

This major revision will put a tremendous burden on the government's statistical agencies, already hampered by tight budgets. The first NAICS data won't appear until early 1999 and won't be fully integrated into the federal statistics until 2004 at the earliest. Moreover, the difference between old SIC and new NAICS industries is so great that many historical comparisons will become difficult to make.

But such disruptions are the price to be paid for a clearer picture of the new information-driven economy. Under NAICS, all industries involved with handling or creating information are in a new information sector. These include software companies such as Microsoft Corp., publishing companies such as The McGraw-Hill Companies (owner of BUSINESS WEEK), movie studios, TV networks, telecommunications companies, and online information services. Equally important, the information sector is broken into detailed industries for which no good data previously existed. "Now we can find out how big we are," says Anne Griffith, research director for the Software Publishers Assn.

PET SUPPLIES. The revisions also provide much better information on white-collar service businesses, such as management consulting, industrial design, and investment banking. Health care will get more categories, including HMO medical centers. It will become easier to track the way Americans live. Home centers, weight-reducing clinics, pet supply stores--all these will receive separate treatment. And the new system will also be adopted by Canada and Mexico, promoting easy comparison among the three economies.

What's the downside? The large-scale revisions means that manufacturing employment in 2001, say, will not be directly comparable to manufacturing employment in 1996. The government's statisticians will attempt to maintain some sort of continuity on a national level and for the biggest sectors of the economy. But for many industries, there simply will be no useful historical data.

Moreover, new economic data for cities and metropolitan regions will be almost impossible to compare with earlier numbers, in large part because the government statistical agencies don't have the manpower or budget to make the necessary adjustments. As one Census report bluntly says: "People interested in smaller geographic areas will be left without answers to rather basic questions like `Did we stop the decline in manufacturing employment in my area?"'

But the truth is that the economy is so changed that many historical comparisons had already become misleading. The U.S. is getting new data for a New Economy--and it's about time.By Michael J. Mandel in New YorkReturn to top

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