2007 North American Industry Classification System (NAICS)-Updates for 2012, 764-768 [E9-60]
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Federal Register / Vol. 74, No. 4 / Wednesday, January 7, 2009 / Notices
OFFICE OF MANAGEMENT AND
BUDGET
2007 North American Industry
Classification System (NAICS)—
Updates for 2012
AGENCY: Office of Management and
Budget, Executive Office of the
President.
ACTION: Notice of Solicitation for
Proposals to Revise Portions of NAICS
for 2012.
SUMMARY: Under the authority of the
Budget and Accounting Procedures Act
of 1950 (31 U.S.C. 1104(d)) and 44
U.S.C. 3504(e), the Office of
Management and Budget, through the
Economic Classification Policy
Committee (ECPC), is soliciting
proposals from the public for changes to
the North American Industry
Classification System (NAICS) structure
and content to be included in a
potential 2012 revision. The ECPC is
also seeking public input on several
clarifications to the existing
classification system (please see Parts I–
VI in the SUPPLEMENTARY INFORMATION
section, below). The clarifications relate
to ongoing changes in how businesses
organize and structure themselves to
efficiently provide goods and services in
the economy.
In Part I, the ECPC provides
background on the NAICS classification
system. In Part II, the ECPC is soliciting
public comments on the advisability
and desirability of reducing national
industry detail in the manufacturing
sector during a 2012 revision of NAICS.
Part III includes a solicitation of
proposals for new and emerging
industries. Part IV presents notification
of a method to publicize corrections for
errors and omissions that are identified
in NAICS 2007. Part V solicits public
comments on the classification of
distribution centers, logistics service
providers, and sales offices of
publishers within NAICS. Part VI
solicits public comments and
suggestions to clarify the classification
of establishments that outsource
manufacturing transformation activities
and provide manufacturing services in
the market given the increasing
specialization and globalization of
business activities in the economy.
In soliciting comments about revising
NAICS, the ECPC does not intend to
open the entire classification for
substantial change in 2012. The ECPC
will consider public comments and
proposals for changes or modifications
that advance the goals of NAICS. The
ECPC is also seeking and will consider
comments related to consistent
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classification in an era of greater
specialization and globalization.
DATES: To ensure consideration of your
comments or proposals related to the
potential revision of NAICS for 2012
detailed in this notice, comments must
be in writing and received no later than
April 7, 2009. Please be aware of delays
in mail processing at Federal facilities
due to tightened security. Respondents
are encouraged to send both a hard copy
and a second copy via fax or e-mail.
ADDRESSES: Correspondence concerning
the ECPC intent to review and possibly
revise NAICS for 2012, comments on the
business organization clarifications, and
all proposals for new industries in
NAICS for 2012 should be sent to John
Murphy, Chair, Economic Classification
Policy Committee, Bureau of the
Census, Room 8K157, Washington, DC
20233–6500. Responses may also be
submitted by e-mail to
John.Burns.Murphy@census.gov or by
fax at (301) 763-8636. Mr. Murphy can
be reached at (301) 763–5172.
Comments may also be sent via http://
www.regulations.gov—a Federal EGovernment Web site that allows the
public to find, review, and submit
comments on documents that agencies
have published in the Federal Register
and that are open for comment. Simply
type ‘‘NAICS for 2012’’ (in quotes) in
the Comment or Submission search box,
click Go, and follow the instructions for
submitting comments.
All comments regarding this notice
received via the Web site, e-mail, fax,
hardcopy, or other means, are part of the
public record as submitted. For this
reason, do not include in your
comments information of a confidential
nature, such as sensitive personal
information or proprietary information.
Please consider including contact
information and a phone number or email address with your comments to
facilitate follow-up if necessary.
Electronic Availability: This
document is available on the Internet
from the Census Bureau Internet site at
http://www.census.gov/naics. This
WWW page contains previous NAICS
United States Federal Register notices,
ECPC Issues Papers, ECPC Reports, the
current structure of NAICS United
States 2007, and related documents.
Public Review Procedure: All
comments and proposals received in
response to this notice will be available
for public inspection at the Bureau of
the Census, Suitland, Maryland. Please
telephone the Census Bureau at (301)
763–5172 to make an appointment to
enter the Federal Center. OMB will
publish all ECPC recommendations for
changes to NAICS for 2012 resulting
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from this notice in the Federal Register
for review and comment prior to final
action.
FOR FURTHER INFORMATION CONTACT: John
Murphy, Chair, Economic Classification
Policy Committee, Bureau of the
Census, Room 8K157, Washington, DC
20233–6500. Mr. Murphy can be
reached at (301) 763–5172, by fax at
(301)763–8636, or by e-mail at
John.Burns.Murphy@census.gov.
SUPPLEMENTARY INFORMATION: The
SUPPLEMENTARY INFORMATION section of
this notice is divided into six parts. Part
I provides background on NAICS 2007;
Part II solicits views regarding the
advisability of reducing industry detail
in the manufacturing sector; Part III
includes a solicitation for proposals for
new and emerging industries; Part IV
notifies the public of the location where
corrections of identified errors or
omissions in NAICS 2007 will be
publicized; Part V requests public input
on the classification of distribution
centers, logistics service providers, and
sales offices of publishers; and Part VI
solicits public comment and proposals
for the classification of establishments
that outsource manufacturing
transformation activities in light of
increasing specialization and
globalization.
Part I: Background of NAICS 2007
NAICS is a system for classifying
establishments (individual business
locations) by type of economic activity.
Its purposes are: (1) To facilitate the
collection, tabulation, presentation, and
analysis of data relating to
establishments; and (2) to promote
uniformity and comparability in the
presentation and analysis of statistical
data describing the North American
economy. NAICS is used by Federal
statistical agencies that collect or
publish data by industry. It is also
widely used by State agencies, trade
associations, private businesses, and
other organizations.
Mexico’s Instituto Nacional de
´
´
´
Estadıstica, Geografiıa Informatica
(INEGI), Statistics Canada, and the
United States Office of Management and
Budget (OMB), through its Economic
Classification Policy Committee (ECPC),
collaborated on NAICS to make the
industry statistics produced by the three
countries comparable. NAICS is the first
industry classification system
developed in accordance with a single
principle of aggregation, the principle
that producing units that use similar
production processes should be grouped
together in the classification. NAICS
also reflects in a much more explicit
way the enormous changes in
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technology and in the growth and
diversification of services that have
marked recent decades. Industry
statistics presented using NAICS are
comparable, to a large extent, with
statistics compiled according to the
latest revision of the United Nations’
International Standard Industrial
Classification (ISIC, Revision 4).
For the three countries, NAICS
provides a consistent framework for the
collection, tabulation, presentation, and
analysis of industry statistics used by
government policy analysts, by
Sector .............................
2-digit ................
Subsector ........................
3-digit ................
Industry Group ................
NAICS Industry ...............
4-digit ................
5-digit ................
National Industry .............
6-digit ................
The implementation of the first
vintage of NAICS—NAICS 1997—
affected almost half of the industries
that were available for use under the
1987 Standard Industrial Classification
(SIC). Subsequent NAICS revisions in
2002 and 2007 were more modest.
Complete details of those revisions were
published in the Federal Register.
Revisions for 2002 were published on
April 20, 2000 (65 FR 21242–21282),
and the revisions for 2007 were
published on March 16, 2006 (71 FR
28532–28533).
The development of NAICS
represented a significant improvement
over the previous classification systems
used in North America. To ensure the
accuracy, timeliness, and relevance of
the classification, NAICS is reviewed
every five years to determine what, if
any, changes are required. The ECPC
recognizes the costs involved when
implementing industry classification
revisions in statistical programs and the
costs for data users when there are
disruptions in the comparability of data.
The ECPC also recognizes the economic,
statistical, and policy implications that
arise when the industry classification
system does not identify and account for
important economic developments.
Balancing the costs of change against
the potential for more accurate and
relevant economic statistics requires
significant input from data producers,
data providers, and data users.
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academics and researchers, by the
business community, and by the public.
The four principles that guided the
initial development of NAICS were:
(1) NAICS is erected on a productionoriented conceptual framework. This
means that producing units that use the
same or similar production processes
are grouped together in NAICS.
(2) NAICS gives special attention to
developing production-oriented
classifications for (a) new and emerging
industries, (b) service industries in
general, and (c) industries engaged in
the production of advanced
technologies.
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(3) Time series continuity is
maintained to the extent possible.
(4) The system strives for
compatibility with the two-digit level of
the International Standard Industrial
Classification of All Economic Activities
(ISIC Rev. 3) of the United Nations.
The ECPC is committed to
maintaining the principles of NAICS as
it develops further refinements. NAICS
uses a hierarchical structure to classify
establishments from the broadest level
to the most detailed level using the
following format:
Sectors represent the highest level of aggregation. There are 20 sectors in NAICS representing
broad levels of aggregation.
Subsectors represent the next, more detailed level of aggregation in NAICS. There are 99 subsectors in NAICS.
Industry groups are more detailed than subsectors. There are 313 Industry groups in NAICS.
NAICS industries are the level that, in most cases, represents the lowest level of three country
comparability. There are 721 five-digit industries in NAICS.
National industries are the most detailed level of NAICS. These industries represent the national
level detail necessary for economic statistics in an industry classification. There are 1175 U.S.
industries in NAICS United States, 2007.
Part II. Detail in the Manufacturing
Sector of NAICS United States 2007
NAICS is the Federal standard used to
produce government economic
statistics. Its structure and detail must
be appropriate for large-scale programs,
such as economic censuses or censuses
of employment and wages as well as for
sample survey programs of smaller size
or more frequent periodicity. The
greater the number of industries
included in these surveys, the greater
their costs in terms of reporting burden
imposed on respondents and in terms of
the resources used to collect, collate,
and disseminate the individual industry
data. The manufacturing sector of
NAICS United States 2007 contains 472
six-digit industries. Of these, 407 are
national level detail that is used only in
the United States. In 2003, to reduce
both respondent burden and production
costs, the Annual Survey of
Manufactures (ASM) produced by the
U.S. Census Bureau collapsed separate
industry data for 239 six-digit industries
into higher level aggregates. (The details
are available at http://www.census.gov/
mcd/asmind/.)
While the ECPC recognizes that the
loss of some level of detail in
manufacturing will affect a wide range
of data users in government, business,
and academia, the ECPC is soliciting
comments on the advisability and
desirability of making similar changes to
the structure of NAICS for 2012.
Specifically, the ECPC is soliciting
comments on the desirability of
reducing the number of detailed
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national (six-digit) U.S. manufacturing
industries while adhering to the
structure of the 184 NAICS five-digit
industries.
Part III. New and Emerging Industries
NAICS was developed to be a
dynamic industry classification. Every
five years, the classification is reviewed
to determine the need to identify new
and emerging industries. The ECPC is
soliciting public comments on the
advisability of revising NAICS for new
and emerging industries in 2012 and
soliciting proposals for these new
industries.
When developing proposals for new
and emerging industries, please note
that there are two separate economic
classification initiatives underway in
the United States. NAICS, the industry
classification, is the subject of this
notice, while the complementary North
American Product Classification System
(NAPCS) initiative is also underway.
The NAPCS product system described
below will complement the NAICS
industry system and provide an
alternate way of classifying output.
NAICS was developed to classify
units according to their production
function. NAICS results in industries
that group units undertaking similar
activities using similar resources but
does not necessarily group all similar
products or outputs. NAPCS is being
developed to classify the outputs of
units, or in other words their products
or transactions, within a demand-based
conceptual framework. For example, the
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hypothetical product of a flu shot can be
provided by a doctor’s office, a hospital,
or a walk-in clinic. Because these three
units are classified to three different
NAICS industries, data users who want
information about all flu shots provided
must be able to identify the individual
products coming out of the units, which
NAPCS is designed to do. Thus, in
many cases, the need for specific
statistical data is better addressed by
aggregating product data across
industries rather than by creating a new
industry. This is particularly true with
NAICS, which groups establishments
into industries based on their primary
production function. Proposals for new
industries in NAICS for 2012 will be
evaluated within the context of both the
industry and product classification
systems to determine the most
appropriate resolution. For a detailed
description of the NAPCS initiative, see
the April 16, 1999, Federal Register
notice (64 FR 18984–18989) available at
http://www.census.gov/napcs.
Proposals for new industries will be
evaluated using a variety of criteria. As
previously mentioned, each proposal
will be evaluated based on the
application of the production function
concept, its impact on comparability
within North America and with other
regions, and its impact on time series.
For any proposals that cross threecountry levels of agreement,
negotiations with Canada and Mexico,
our partners in NAICS, will also
influence the ECPC’s recommendations
on those proposals. In addition, other
criteria may affect recommendations for
adoption. From a practical standpoint,
industries must be of appropriate size.
At the national level, this is generally
not a major concern but there are a
variety of statistical programs that
produce industry data at the regional,
State, MSA, or even county or local
level. Proposed industries must include
a sufficient number of establishments so
that Federal agencies can publish
industry data without disclosing
information about the operations of
individual firms. The ability of
government agencies to classify, collect,
and publish data on the proposed basis
will also be taken into account.
Proposed changes must be such that
they can be applied by agencies within
their normal processing operations. Any
recommendations for change forwarded
by the ECPC for consideration will also
take into account the cost of making the
changes. These costs can be
considerable and the availability of
funding to make changes is critical. The
budgetary environment will be
considered when the ECPC makes
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recommendations. As mentioned above,
certain proposals may be more
adequately addressed through the
identification and collection of product
data.
Proposals for new or revised
industries should be consistent with the
production-oriented conceptual
framework incorporated into the
principles of NAICS. When formulating
proposals, please note that an industry
classification system groups the
economic activities of producing units,
which means that the activities of
similar producing units cannot be
separated in the industry classification
system.
Proposals must be in writing and
include the following information:
a) Specific detail about the economic
activities to be covered by the proposed
industry, especially its production
processes, specialized labor skills, and
any unique materials used. This detail
should demonstrate that the proposal
groups establishments that have similar
production processes that are unique
and clearly separable from the
production processes of other
industries.
b) Specific indication of the
relationship of the proposed industry to
existing NAICS United States six-digit
industries.
c) Documentation of the size and
importance of the proposed industry in
the United States.
d) Information about the proposed
industry in Canada and Mexico if
available.
Proposals will be collected, reviewed,
and analyzed. As necessary, proposals
for change will be negotiated with our
partners in Canada and Mexico. When
this process is complete, the OMB will
publish a Federal Register notice that
contains the ECPC recommendations for
additional public comment prior to a
final determination of changes to NAICS
for 2012.
Part IV. Changes to Account for Errors
and Omissions in NAICS 2007
No significant errors or omissions
have been identified in NAICS. Any
errors or omissions that are identified in
the future will be corrected and posted
on the official NAICS Web site at
http://www.census.gov/naics.
Part V. Clarification of Distribution
Centers, Publishers’ Sales Offices, and
Logistics Service Providers in NAICS
United States
Clarification on the classification of
distribution centers is relatively
straightforward. Options might include
wholesale trade because of the function
of breaking bulk, storage and
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warehousing because of the
characteristics of the facilities, or even
trucking terminals as cross-docking
practices develop and improve. Sales
offices of publishers could be classified
either to publishing or to wholesale
trade. Classification of logistics services
may hinge on the treatment of
outsourcing or the separate
identification of logistics products.
Clarification of the classification of
these units is intended to improve the
consistency of classification and the
comparability of data from various
producers using the NAICS
classification. The ECPC is soliciting
comments or proposals related to the
classification of distribution centers,
publishers’ sales offices, and logistics
service providers for the 2012 revision.
Part VI—Clarification of the Treatment
of Manufacturing Units That Outsource
Transformation
The structure and organization of
many businesses engaged in the
production of goods continues to change
as they attempt to increase efficiency
and reduce costs by employing new and
improved processes. One very
noticeable and rapidly growing activity
is and has been the outsourcing of part
or all of the manufacturing production
process of goods. The growth in
outsourcing of the manufacturing
transformation of goods to specialized
providers is now quite commonplace as
firms continue to explore new paths to
increase revenues and reduce costs of
production. The expansion of
competition globally and the formation
of highly specialized business activities
create unique problems for an industrial
classification system such as NAICS.
When producers subcontract portions of
the production process to separate
affiliated or unaffiliated units, the
production function changes at the
establishment level. As described in
Parts I and III, above, the production
functions define the industries in
NAICS to the extent possible.
In this particular case, NAICS United
States 2007 does not provide clear or
adequate guidance on the classification
of units that perform only part of the
complete production process for goods.
Further, because there is no clear
guidance for NAICS to provide a
consistent and transparent classification
framework for the development of
comparable statistics across programs
and agencies, differences in
classification practices across programs
may lead to erroneous signals on the
direction of the economy that could
potentially result in faulty policy
decisions. For example, if employment
is classified in manufacturing in one
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program while the associated output is
classified by another program in
wholesale trade, estimates of
productivity and GDP may potentially
provide erroneous signals if the
differences are not well understood and
accounted for when developing the
relevant statistics.
Because of this concern, the Economic
Classification Policy Committee (ECPC)
chartered a Manufacturing
Transformation Outsourcing
Subcommittee to review options for the
consistent classification of
establishments that outsource
manufacturing transformation. The
ECPC is soliciting public input to assist
the subcommittee in its work.
As noted earlier in this document,
NAICS is based on a productionoriented or production function
conceptual framework. A production
function describes any economic
activity in which inputs, such as the
services of types of labor and capital
equipment, raw and intermediate
materials, and, in many cases, intangible
inputs such as intellectual property are
used to manufacture a material good or
to render a service.1
In describing the production process,
the preliminary work of the
subcommittee has identified three
general types of units involved in the
production of goods: (a) Traditional or
integrated manufacturers, (b)
manufacturing service providers, and (c)
‘‘factoryless’’ goods producers.2 Below
we broadly define and list the
characteristics of these units:
A. Traditional or Integrated
Manufacturers
The traditional or integrated
manufacturer utilizes inputs such as
capital, labor, and energy to transform
material inputs into a new product to be
sold. Characteristics of integrated
manufacturers include:
• Performs transformation activities;
• Owns rights to the intellectual
property or design (whether
independently developed or otherwise
acquired) of the final manufactured
product;
• Owns the product they
manufacture;
• Controls and facilitates the
production process; and
• Sells the final product.
1 For more information see The Economic
Classification Policy Committee ‘‘Issue Paper No. 1’’
http://www.census.gov/eos/www/naics/history/
docs/issue_paper_1.pdf.
2 This terminology appeared in a 2004 discussion
paper ‘‘Outsourcing Manufacturing Activities—
Measurement and Classification Implications’’ by
John Murphy, Assistant Division Chief for
Classification Activities at the United States Bureau
of the Census.
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An integrated manufacturer can
provide a full accounting of input costs
and output values.
B. Manufacturing Service Providers
The manufacturing service provider
provides contract manufacturing
services—defined tasks specified by a
contract—that utilize inputs such as
capital, labor, and energy to transform
material inputs according to the contract
specifications. Characteristics of
manufacturing service providers
include:
• Performs transformation activities;
• Receives contract to perform
transformation activities;
• Does not own rights to the
intellectual property or the design of the
new product;
• Does not own the manufactured
products contracted to produce;
• Controls the facility but does not
control the production process (i.e., the
manufactured product is made to the
contract’s specifications); and
• Does not sell the final product.
The manufacturing service provider
can provide information on the value of
the contract work, the types of
transformation activities it performed,
and the value of the labor and the plant
and equipment utilized in the
transformation activities. However, this
type of provider cannot report the
market value of the final product.
C. Factoryless Goods Producers
The factoryless goods producer
outsources all of the transformation
steps that traditionally have been
considered manufacturing, but
undertakes all of the entrepreneurial
steps and arranges for all required
capital, labor, and material inputs
required to make a good. Characteristics
of factoryless goods producers include:
• Does not perform transformation
activities;
• Contracts with manufacturing
service provider to perform
transformation activities to its
specifications;
• Owns rights to the intellectual
property or design (whether
independently developed or otherwise
acquired) of the final manufactured
product;
• Owns the manufactured product it
contracted another establishment to
produce;
• Controls and facilitates the
production process; and
• Sells the final product.
A factoryless goods provider can
provide information on the purchase of
the manufacturing service, that is, the
cost of the contract, but would not
necessarily have production worker
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payroll or capital expenditures on plant
and equipment. However, this type of
provider can provide data on the
number of units that were arranged to be
produced and the market value of the
final product.
In reality, businesses producing goods
use a variety of strategies that can
involve outsourcing some or all of the
transformation steps to one or more
manufacturing service providers.
Substitution of one input for another is
inherently part of many production
processes within the manufacturing
sector. Sector classification does not
change if raw materials are produced
within a unit or purchased from
independent companies. Regardless of
whether a manufacturer leases the
factory where the transformation occurs
or uses its own, it remains classified
within manufacturing. If a manufacturer
hires independent contractors or uses
the services of a professional employer
association rather than hiring and
managing employees directly, it would
remain classified in the manufacturing
sector. Input substitution decisions
affect the establishment production
function but not the overall process of
producing goods. A producing unit
could be considered as changing the
payment method of acquiring the inputs
of capital, labor, and materials used in
production.
As noted in NAICS United States
2007, units that perform chemical,
physical, or mechanical transformation
of inputs into new outputs are usually
classified in manufacturing. This
includes integrated manufacturers and
manufacturing service providers that
operate factories, plants, or mills, even
if they outsource or subcontract some
transformation to others. The growth of
manufacturing service providers
domestically and overseas is the result
of traditional integrated manufacturers
substituting away from direct
expenditures on capital and labor (that
is, factories and production workers) to
purchases of capital services and labor
services and new producers choosing
this input mix from the beginning. With
the exception of the apparel industries,
NAICS classifies integrated
manufacturers and manufacturing
service providers together by industry.
One classification option to consider is
whether integrated manufacturers and
manufacturing service providers should
be separately identified in the structure
of NAICS.
As noted above, the classification of
units that do not operate factories,
plants, or mills, yet are a driving force
behind goods being available in the
market, is not clearly defined in NAICS.
A preliminary review of classification
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choices for factoryless goods producers,
that is, units that perform all of the
entrepreneurial functions of a
manufacturer but outsource the actual
transformation to one or more partners
or manufacturing service providers, was
narrowed down to two possibilities by
the ECPC. First, these units could be
classified within the manufacturing
sector because without these units, the
goods would not be produced and
brought to market. Alternatively, these
units could be classified within the
wholesale trade sector, because they
purchase critical input transformation
services from others and are more like
a traditional wholesaler who buys and
sells goods. In addition, the ECPC
considered classification in Sector 54,
Professional, Scientific, and Technical
Services, because factoryless goods
producers could produce their own
designs or intellectual property.
However, unless the designs or
intellectual property are sold or licensed
to others, the production would not be
measurable as manufactured output.
Further, factoryless goods producers
could acquire designs or intellectual
property developed by others, thus
bearing no resemblance to research and
development units. The ECPC also
considered classification to Industry
551114, Corporate, Subsidiary, and
Regional Managing Offices. In this case,
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a single establishment arranging for and
overseeing the production of goods (i.e.,
an operating unit) would be classified to
the industry defined by enterprise
support units or auxiliaries, e.g., central
administrative offices in the former
Standard Industrial Classification. A
single operating unit cannot be a
domestic support or auxiliary unit by
definition.
Classification of factoryless goods
producers to the manufacturing sector
would result in the full value of goods,
including returns to intellectual
property and entrepreneurial risk, being
included in manufacturing.
Classification to wholesale trade would
result in margins that include the
returns to intellectual property and
entrepreneurial activities, but limit
manufacturing to units that are
undertaking physical transformation.
When the domestic production
boundary is crossed, the ability to
properly identify transactions for goods
and transactions for services will be
difficult, yet critical. Once a sector
classification for factoryless goods
producers is chosen, they could be
merged into the existing NAICS
industries or separately identified at the
industry level.
Classification of factoryless goods
producers to either manufacturing or
wholesale trade will affect current
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statistical programs and the estimates
that they produce. All of the agencies
represented on the ECPC share a
concern about the ability to identify and
consistently classify factoryless goods
producers regardless of the ultimate
classification. Beyond that common
concern, specific impacts on statistical
programs addressing input/output
analysis, industry gross domestic
product, trade in goods, trade in
services, producer prices, productivity,
and balance of payments must be
considered.
Additionally, the impact on
international standards such as the 2008
revision to the System of National
Accounts and the Balance of Payments
Manual must be considered.
In summary, the ECPC is soliciting
public comments regarding the
classification of units that outsource all
transformation activities within the
NAICS system, taking into consideration
the framework of existing statistical
programs and the interrelationships and
interdependencies of economic data
produced in the United States.
Susan E. Dudley,
Administrator, Office of Information and
Regulatory Affairs.
[FR Doc. E9–60 Filed 1–6–09; 8:45 am]
BILLING CODE 3110–01–P
E:\FR\FM\07JAN2.SGM
07JAN2
Agencies
[Federal Register Volume 74, Number 4 (Wednesday, January 7, 2009)]
[Notices]
[Pages 764-768]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-60]
[[Page 763]]
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Part II
Office of Management and Budget
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2007 North American Industry Classification System (NAICS)--Updates for
2012; Notice
Federal Register / Vol. 74, No. 4 / Wednesday, January 7, 2009 /
Notices
[[Page 764]]
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OFFICE OF MANAGEMENT AND BUDGET
2007 North American Industry Classification System (NAICS)--
Updates for 2012
AGENCY: Office of Management and Budget, Executive Office of the
President.
ACTION: Notice of Solicitation for Proposals to Revise Portions of
NAICS for 2012.
-----------------------------------------------------------------------
Summary: Under the authority of the Budget and Accounting Procedures
Act of 1950 (31 U.S.C. 1104(d)) and 44 U.S.C. 3504(e), the Office of
Management and Budget, through the Economic Classification Policy
Committee (ECPC), is soliciting proposals from the public for changes
to the North American Industry Classification System (NAICS) structure
and content to be included in a potential 2012 revision. The ECPC is
also seeking public input on several clarifications to the existing
classification system (please see Parts I-VI in the SUPPLEMENTARY
INFORMATION section, below). The clarifications relate to ongoing
changes in how businesses organize and structure themselves to
efficiently provide goods and services in the economy.
In Part I, the ECPC provides background on the NAICS classification
system. In Part II, the ECPC is soliciting public comments on the
advisability and desirability of reducing national industry detail in
the manufacturing sector during a 2012 revision of NAICS. Part III
includes a solicitation of proposals for new and emerging industries.
Part IV presents notification of a method to publicize corrections for
errors and omissions that are identified in NAICS 2007. Part V solicits
public comments on the classification of distribution centers,
logistics service providers, and sales offices of publishers within
NAICS. Part VI solicits public comments and suggestions to clarify the
classification of establishments that outsource manufacturing
transformation activities and provide manufacturing services in the
market given the increasing specialization and globalization of
business activities in the economy.
In soliciting comments about revising NAICS, the ECPC does not
intend to open the entire classification for substantial change in
2012. The ECPC will consider public comments and proposals for changes
or modifications that advance the goals of NAICS. The ECPC is also
seeking and will consider comments related to consistent classification
in an era of greater specialization and globalization.
DATES: To ensure consideration of your comments or proposals related to
the potential revision of NAICS for 2012 detailed in this notice,
comments must be in writing and received no later than April 7, 2009.
Please be aware of delays in mail processing at Federal facilities due
to tightened security. Respondents are encouraged to send both a hard
copy and a second copy via fax or e-mail.
ADDRESSES: Correspondence concerning the ECPC intent to review and
possibly revise NAICS for 2012, comments on the business organization
clarifications, and all proposals for new industries in NAICS for 2012
should be sent to John Murphy, Chair, Economic Classification Policy
Committee, Bureau of the Census, Room 8K157, Washington, DC 20233-6500.
Responses may also be submitted by e-mail to
John.Burns.Murphy@census.gov or by fax at (301) 763-8636. Mr. Murphy
can be reached at (301) 763-5172.
Comments may also be sent via http://www.regulations.gov--a Federal
E-Government Web site that allows the public to find, review, and
submit comments on documents that agencies have published in the
Federal Register and that are open for comment. Simply type ``NAICS for
2012'' (in quotes) in the Comment or Submission search box, click Go,
and follow the instructions for submitting comments.
All comments regarding this notice received via the Web site, e-
mail, fax, hardcopy, or other means, are part of the public record as
submitted. For this reason, do not include in your comments information
of a confidential nature, such as sensitive personal information or
proprietary information.
Please consider including contact information and a phone number or
e-mail address with your comments to facilitate follow-up if necessary.
Electronic Availability: This document is available on the Internet
from the Census Bureau Internet site at http://www.census.gov/naics.
This WWW page contains previous NAICS United States Federal Register
notices, ECPC Issues Papers, ECPC Reports, the current structure of
NAICS United States 2007, and related documents.
Public Review Procedure: All comments and proposals received in
response to this notice will be available for public inspection at the
Bureau of the Census, Suitland, Maryland. Please telephone the Census
Bureau at (301) 763-5172 to make an appointment to enter the Federal
Center. OMB will publish all ECPC recommendations for changes to NAICS
for 2012 resulting from this notice in the Federal Register for review
and comment prior to final action.
FOR FURTHER INFORMATION CONTACT: John Murphy, Chair, Economic
Classification Policy Committee, Bureau of the Census, Room 8K157,
Washington, DC 20233-6500. Mr. Murphy can be reached at (301) 763-5172,
by fax at (301)763-8636, or by e-mail at John.Burns.Murphy@census.gov.
SUPPLEMENTARY INFORMATION: The SUPPLEMENTARY INFORMATION section of
this notice is divided into six parts. Part I provides background on
NAICS 2007; Part II solicits views regarding the advisability of
reducing industry detail in the manufacturing sector; Part III includes
a solicitation for proposals for new and emerging industries; Part IV
notifies the public of the location where corrections of identified
errors or omissions in NAICS 2007 will be publicized; Part V requests
public input on the classification of distribution centers, logistics
service providers, and sales offices of publishers; and Part VI
solicits public comment and proposals for the classification of
establishments that outsource manufacturing transformation activities
in light of increasing specialization and globalization.
Part I: Background of NAICS 2007
NAICS is a system for classifying establishments (individual
business locations) by type of economic activity. Its purposes are: (1)
To facilitate the collection, tabulation, presentation, and analysis of
data relating to establishments; and (2) to promote uniformity and
comparability in the presentation and analysis of statistical data
describing the North American economy. NAICS is used by Federal
statistical agencies that collect or publish data by industry. It is
also widely used by State agencies, trade associations, private
businesses, and other organizations.
Mexico's Instituto Nacional de Estad[iacute]stica,
Geografi[iacute]a Inform[aacute]tica (INEGI), Statistics Canada, and
the United States Office of Management and Budget (OMB), through its
Economic Classification Policy Committee (ECPC), collaborated on NAICS
to make the industry statistics produced by the three countries
comparable. NAICS is the first industry classification system developed
in accordance with a single principle of aggregation, the principle
that producing units that use similar production processes should be
grouped together in the classification. NAICS also reflects in a much
more explicit way the enormous changes in
[[Page 765]]
technology and in the growth and diversification of services that have
marked recent decades. Industry statistics presented using NAICS are
comparable, to a large extent, with statistics compiled according to
the latest revision of the United Nations' International Standard
Industrial Classification (ISIC, Revision 4).
For the three countries, NAICS provides a consistent framework for
the collection, tabulation, presentation, and analysis of industry
statistics used by government policy analysts, by academics and
researchers, by the business community, and by the public.
The four principles that guided the initial development of NAICS
were:
(1) NAICS is erected on a production-oriented conceptual framework.
This means that producing units that use the same or similar production
processes are grouped together in NAICS.
(2) NAICS gives special attention to developing production-oriented
classifications for (a) new and emerging industries, (b) service
industries in general, and (c) industries engaged in the production of
advanced technologies.
(3) Time series continuity is maintained to the extent possible.
(4) The system strives for compatibility with the two-digit level
of the International Standard Industrial Classification of All Economic
Activities (ISIC Rev. 3) of the United Nations.
The ECPC is committed to maintaining the principles of NAICS as it
develops further refinements. NAICS uses a hierarchical structure to
classify establishments from the broadest level to the most detailed
level using the following format:
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Sector............................. 2-digit.................... Sectors represent the highest level of
aggregation. There are 20 sectors in NAICS
representing broad levels of aggregation.
Subsector.......................... 3-digit.................... Subsectors represent the next, more detailed
level of aggregation in NAICS. There are 99
subsectors in NAICS.
Industry Group..................... 4-digit.................... Industry groups are more detailed than
subsectors. There are 313 Industry groups in
NAICS.
NAICS Industry..................... 5-digit.................... NAICS industries are the level that, in most
cases, represents the lowest level of three
country comparability. There are 721 five-
digit industries in NAICS.
National Industry.................. 6-digit.................... National industries are the most detailed
level of NAICS. These industries represent
the national level detail necessary for
economic statistics in an industry
classification. There are 1175 U.S.
industries in NAICS United States, 2007.
----------------------------------------------------------------------------------------------------------------
The implementation of the first vintage of NAICS--NAICS 1997--
affected almost half of the industries that were available for use
under the 1987 Standard Industrial Classification (SIC). Subsequent
NAICS revisions in 2002 and 2007 were more modest. Complete details of
those revisions were published in the Federal Register. Revisions for
2002 were published on April 20, 2000 (65 FR 21242-21282), and the
revisions for 2007 were published on March 16, 2006 (71 FR 28532-
28533).
The development of NAICS represented a significant improvement over
the previous classification systems used in North America. To ensure
the accuracy, timeliness, and relevance of the classification, NAICS is
reviewed every five years to determine what, if any, changes are
required. The ECPC recognizes the costs involved when implementing
industry classification revisions in statistical programs and the costs
for data users when there are disruptions in the comparability of data.
The ECPC also recognizes the economic, statistical, and policy
implications that arise when the industry classification system does
not identify and account for important economic developments. Balancing
the costs of change against the potential for more accurate and
relevant economic statistics requires significant input from data
producers, data providers, and data users.
Part II. Detail in the Manufacturing Sector of NAICS United States 2007
NAICS is the Federal standard used to produce government economic
statistics. Its structure and detail must be appropriate for large-
scale programs, such as economic censuses or censuses of employment and
wages as well as for sample survey programs of smaller size or more
frequent periodicity. The greater the number of industries included in
these surveys, the greater their costs in terms of reporting burden
imposed on respondents and in terms of the resources used to collect,
collate, and disseminate the individual industry data. The
manufacturing sector of NAICS United States 2007 contains 472 six-digit
industries. Of these, 407 are national level detail that is used only
in the United States. In 2003, to reduce both respondent burden and
production costs, the Annual Survey of Manufactures (ASM) produced by
the U.S. Census Bureau collapsed separate industry data for 239 six-
digit industries into higher level aggregates. (The details are
available at http://www.census.gov/mcd/asmind/.)
While the ECPC recognizes that the loss of some level of detail in
manufacturing will affect a wide range of data users in government,
business, and academia, the ECPC is soliciting comments on the
advisability and desirability of making similar changes to the
structure of NAICS for 2012. Specifically, the ECPC is soliciting
comments on the desirability of reducing the number of detailed
national (six-digit) U.S. manufacturing industries while adhering to
the structure of the 184 NAICS five-digit industries.
Part III. New and Emerging Industries
NAICS was developed to be a dynamic industry classification. Every
five years, the classification is reviewed to determine the need to
identify new and emerging industries. The ECPC is soliciting public
comments on the advisability of revising NAICS for new and emerging
industries in 2012 and soliciting proposals for these new industries.
When developing proposals for new and emerging industries, please
note that there are two separate economic classification initiatives
underway in the United States. NAICS, the industry classification, is
the subject of this notice, while the complementary North American
Product Classification System (NAPCS) initiative is also underway. The
NAPCS product system described below will complement the NAICS industry
system and provide an alternate way of classifying output.
NAICS was developed to classify units according to their production
function. NAICS results in industries that group units undertaking
similar activities using similar resources but does not necessarily
group all similar products or outputs. NAPCS is being developed to
classify the outputs of units, or in other words their products or
transactions, within a demand-based conceptual framework. For example,
the
[[Page 766]]
hypothetical product of a flu shot can be provided by a doctor's
office, a hospital, or a walk-in clinic. Because these three units are
classified to three different NAICS industries, data users who want
information about all flu shots provided must be able to identify the
individual products coming out of the units, which NAPCS is designed to
do. Thus, in many cases, the need for specific statistical data is
better addressed by aggregating product data across industries rather
than by creating a new industry. This is particularly true with NAICS,
which groups establishments into industries based on their primary
production function. Proposals for new industries in NAICS for 2012
will be evaluated within the context of both the industry and product
classification systems to determine the most appropriate resolution.
For a detailed description of the NAPCS initiative, see the April 16,
1999, Federal Register notice (64 FR 18984-18989) available at http://
www.census.gov/napcs.
Proposals for new industries will be evaluated using a variety of
criteria. As previously mentioned, each proposal will be evaluated
based on the application of the production function concept, its impact
on comparability within North America and with other regions, and its
impact on time series. For any proposals that cross three-country
levels of agreement, negotiations with Canada and Mexico, our partners
in NAICS, will also influence the ECPC's recommendations on those
proposals. In addition, other criteria may affect recommendations for
adoption. From a practical standpoint, industries must be of
appropriate size. At the national level, this is generally not a major
concern but there are a variety of statistical programs that produce
industry data at the regional, State, MSA, or even county or local
level. Proposed industries must include a sufficient number of
establishments so that Federal agencies can publish industry data
without disclosing information about the operations of individual
firms. The ability of government agencies to classify, collect, and
publish data on the proposed basis will also be taken into account.
Proposed changes must be such that they can be applied by agencies
within their normal processing operations. Any recommendations for
change forwarded by the ECPC for consideration will also take into
account the cost of making the changes. These costs can be considerable
and the availability of funding to make changes is critical. The
budgetary environment will be considered when the ECPC makes
recommendations. As mentioned above, certain proposals may be more
adequately addressed through the identification and collection of
product data.
Proposals for new or revised industries should be consistent with
the production-oriented conceptual framework incorporated into the
principles of NAICS. When formulating proposals, please note that an
industry classification system groups the economic activities of
producing units, which means that the activities of similar producing
units cannot be separated in the industry classification system.
Proposals must be in writing and include the following information:
a) Specific detail about the economic activities to be covered by
the proposed industry, especially its production processes, specialized
labor skills, and any unique materials used. This detail should
demonstrate that the proposal groups establishments that have similar
production processes that are unique and clearly separable from the
production processes of other industries.
b) Specific indication of the relationship of the proposed industry
to existing NAICS United States six-digit industries.
c) Documentation of the size and importance of the proposed
industry in the United States.
d) Information about the proposed industry in Canada and Mexico if
available.
Proposals will be collected, reviewed, and analyzed. As necessary,
proposals for change will be negotiated with our partners in Canada and
Mexico. When this process is complete, the OMB will publish a Federal
Register notice that contains the ECPC recommendations for additional
public comment prior to a final determination of changes to NAICS for
2012.
Part IV. Changes to Account for Errors and Omissions in NAICS 2007
No significant errors or omissions have been identified in NAICS.
Any errors or omissions that are identified in the future will be
corrected and posted on the official NAICS Web site at http://
www.census.gov/naics.
Part V. Clarification of Distribution Centers, Publishers' Sales
Offices, and Logistics Service Providers in NAICS United States
Clarification on the classification of distribution centers is
relatively straightforward. Options might include wholesale trade
because of the function of breaking bulk, storage and warehousing
because of the characteristics of the facilities, or even trucking
terminals as cross-docking practices develop and improve. Sales offices
of publishers could be classified either to publishing or to wholesale
trade. Classification of logistics services may hinge on the treatment
of outsourcing or the separate identification of logistics products.
Clarification of the classification of these units is intended to
improve the consistency of classification and the comparability of data
from various producers using the NAICS classification. The ECPC is
soliciting comments or proposals related to the classification of
distribution centers, publishers' sales offices, and logistics service
providers for the 2012 revision.
Part VI--Clarification of the Treatment of Manufacturing Units That
Outsource Transformation
The structure and organization of many businesses engaged in the
production of goods continues to change as they attempt to increase
efficiency and reduce costs by employing new and improved processes.
One very noticeable and rapidly growing activity is and has been the
outsourcing of part or all of the manufacturing production process of
goods. The growth in outsourcing of the manufacturing transformation of
goods to specialized providers is now quite commonplace as firms
continue to explore new paths to increase revenues and reduce costs of
production. The expansion of competition globally and the formation of
highly specialized business activities create unique problems for an
industrial classification system such as NAICS. When producers
subcontract portions of the production process to separate affiliated
or unaffiliated units, the production function changes at the
establishment level. As described in Parts I and III, above, the
production functions define the industries in NAICS to the extent
possible.
In this particular case, NAICS United States 2007 does not provide
clear or adequate guidance on the classification of units that perform
only part of the complete production process for goods. Further,
because there is no clear guidance for NAICS to provide a consistent
and transparent classification framework for the development of
comparable statistics across programs and agencies, differences in
classification practices across programs may lead to erroneous signals
on the direction of the economy that could potentially result in faulty
policy decisions. For example, if employment is classified in
manufacturing in one
[[Page 767]]
program while the associated output is classified by another program in
wholesale trade, estimates of productivity and GDP may potentially
provide erroneous signals if the differences are not well understood
and accounted for when developing the relevant statistics.
Because of this concern, the Economic Classification Policy
Committee (ECPC) chartered a Manufacturing Transformation Outsourcing
Subcommittee to review options for the consistent classification of
establishments that outsource manufacturing transformation. The ECPC is
soliciting public input to assist the subcommittee in its work.
As noted earlier in this document, NAICS is based on a production-
oriented or production function conceptual framework. A production
function describes any economic activity in which inputs, such as the
services of types of labor and capital equipment, raw and intermediate
materials, and, in many cases, intangible inputs such as intellectual
property are used to manufacture a material good or to render a
service.\1\
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\1\ For more information see The Economic Classification Policy
Committee ``Issue Paper No. 1'' http://www.census.gov/eos/www/naics/
history/docs/issue_paper_1.pdf.
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In describing the production process, the preliminary work of the
subcommittee has identified three general types of units involved in
the production of goods: (a) Traditional or integrated manufacturers,
(b) manufacturing service providers, and (c) ``factoryless'' goods
producers.\2\ Below we broadly define and list the characteristics of
these units:
---------------------------------------------------------------------------
\2\ This terminology appeared in a 2004 discussion paper
``Outsourcing Manufacturing Activities--Measurement and
Classification Implications'' by John Murphy, Assistant Division
Chief for Classification Activities at the United States Bureau of
the Census.
---------------------------------------------------------------------------
A. Traditional or Integrated Manufacturers
The traditional or integrated manufacturer utilizes inputs such as
capital, labor, and energy to transform material inputs into a new
product to be sold. Characteristics of integrated manufacturers
include:
Performs transformation activities;
Owns rights to the intellectual property or design
(whether independently developed or otherwise acquired) of the final
manufactured product;
Owns the product they manufacture;
Controls and facilitates the production process; and
Sells the final product.
An integrated manufacturer can provide a full accounting of input
costs and output values.
B. Manufacturing Service Providers
The manufacturing service provider provides contract manufacturing
services--defined tasks specified by a contract--that utilize inputs
such as capital, labor, and energy to transform material inputs
according to the contract specifications. Characteristics of
manufacturing service providers include:
Performs transformation activities;
Receives contract to perform transformation activities;
Does not own rights to the intellectual property or the
design of the new product;
Does not own the manufactured products contracted to
produce;
Controls the facility but does not control the production
process (i.e., the manufactured product is made to the contract's
specifications); and
Does not sell the final product.
The manufacturing service provider can provide information on the
value of the contract work, the types of transformation activities it
performed, and the value of the labor and the plant and equipment
utilized in the transformation activities. However, this type of
provider cannot report the market value of the final product.
C. Factoryless Goods Producers
The factoryless goods producer outsources all of the transformation
steps that traditionally have been considered manufacturing, but
undertakes all of the entrepreneurial steps and arranges for all
required capital, labor, and material inputs required to make a good.
Characteristics of factoryless goods producers include:
Does not perform transformation activities;
Contracts with manufacturing service provider to perform
transformation activities to its specifications;
Owns rights to the intellectual property or design
(whether independently developed or otherwise acquired) of the final
manufactured product;
Owns the manufactured product it contracted another
establishment to produce;
Controls and facilitates the production process; and
Sells the final product.
A factoryless goods provider can provide information on the
purchase of the manufacturing service, that is, the cost of the
contract, but would not necessarily have production worker payroll or
capital expenditures on plant and equipment. However, this type of
provider can provide data on the number of units that were arranged to
be produced and the market value of the final product.
In reality, businesses producing goods use a variety of strategies
that can involve outsourcing some or all of the transformation steps to
one or more manufacturing service providers. Substitution of one input
for another is inherently part of many production processes within the
manufacturing sector. Sector classification does not change if raw
materials are produced within a unit or purchased from independent
companies. Regardless of whether a manufacturer leases the factory
where the transformation occurs or uses its own, it remains classified
within manufacturing. If a manufacturer hires independent contractors
or uses the services of a professional employer association rather than
hiring and managing employees directly, it would remain classified in
the manufacturing sector. Input substitution decisions affect the
establishment production function but not the overall process of
producing goods. A producing unit could be considered as changing the
payment method of acquiring the inputs of capital, labor, and materials
used in production.
As noted in NAICS United States 2007, units that perform chemical,
physical, or mechanical transformation of inputs into new outputs are
usually classified in manufacturing. This includes integrated
manufacturers and manufacturing service providers that operate
factories, plants, or mills, even if they outsource or subcontract some
transformation to others. The growth of manufacturing service providers
domestically and overseas is the result of traditional integrated
manufacturers substituting away from direct expenditures on capital and
labor (that is, factories and production workers) to purchases of
capital services and labor services and new producers choosing this
input mix from the beginning. With the exception of the apparel
industries, NAICS classifies integrated manufacturers and manufacturing
service providers together by industry. One classification option to
consider is whether integrated manufacturers and manufacturing service
providers should be separately identified in the structure of NAICS.
As noted above, the classification of units that do not operate
factories, plants, or mills, yet are a driving force behind goods being
available in the market, is not clearly defined in NAICS. A preliminary
review of classification
[[Page 768]]
choices for factoryless goods producers, that is, units that perform
all of the entrepreneurial functions of a manufacturer but outsource
the actual transformation to one or more partners or manufacturing
service providers, was narrowed down to two possibilities by the ECPC.
First, these units could be classified within the manufacturing sector
because without these units, the goods would not be produced and
brought to market. Alternatively, these units could be classified
within the wholesale trade sector, because they purchase critical input
transformation services from others and are more like a traditional
wholesaler who buys and sells goods. In addition, the ECPC considered
classification in Sector 54, Professional, Scientific, and Technical
Services, because factoryless goods producers could produce their own
designs or intellectual property. However, unless the designs or
intellectual property are sold or licensed to others, the production
would not be measurable as manufactured output. Further, factoryless
goods producers could acquire designs or intellectual property
developed by others, thus bearing no resemblance to research and
development units. The ECPC also considered classification to Industry
551114, Corporate, Subsidiary, and Regional Managing Offices. In this
case, a single establishment arranging for and overseeing the
production of goods (i.e., an operating unit) would be classified to
the industry defined by enterprise support units or auxiliaries, e.g.,
central administrative offices in the former Standard Industrial
Classification. A single operating unit cannot be a domestic support or
auxiliary unit by definition.
Classification of factoryless goods producers to the manufacturing
sector would result in the full value of goods, including returns to
intellectual property and entrepreneurial risk, being included in
manufacturing. Classification to wholesale trade would result in
margins that include the returns to intellectual property and
entrepreneurial activities, but limit manufacturing to units that are
undertaking physical transformation. When the domestic production
boundary is crossed, the ability to properly identify transactions for
goods and transactions for services will be difficult, yet critical.
Once a sector classification for factoryless goods producers is chosen,
they could be merged into the existing NAICS industries or separately
identified at the industry level.
Classification of factoryless goods producers to either
manufacturing or wholesale trade will affect current statistical
programs and the estimates that they produce. All of the agencies
represented on the ECPC share a concern about the ability to identify
and consistently classify factoryless goods producers regardless of the
ultimate classification. Beyond that common concern, specific impacts
on statistical programs addressing input/output analysis, industry
gross domestic product, trade in goods, trade in services, producer
prices, productivity, and balance of payments must be considered.
Additionally, the impact on international standards such as the
2008 revision to the System of National Accounts and the Balance of
Payments Manual must be considered.
In summary, the ECPC is soliciting public comments regarding the
classification of units that outsource all transformation activities
within the NAICS system, taking into consideration the framework of
existing statistical programs and the interrelationships and
interdependencies of economic data produced in the United States.
Susan E. Dudley,
Administrator, Office of Information and Regulatory Affairs.
[FR Doc. E9-60 Filed 1-6-09; 8:45 am]
BILLING CODE 3110-01-P