What does every business need but not every industry has?

0:01NPR.

0:06Every five years, a sort of Olympics of government data collecting happens. Kind of. It's when changes to the NAICS codes are awarded. And that time is coming up. But what are NAICS codes? Can't believe you don't know, Sally. Just kidding. I'm a fellow econ nerd. It stands for North American Industry Classification System. They're what we use to categorize industries, like 114 for fishing, hunting, and trapping, or mining, 212, but not for oil and gas, which has its own code. Their main purpose is to monitor economic activity. The BLS and Economic Census use NAICS. Government contracts are awarded based on NAICS.

0:47there's a lot of money at stake. But if an industry doesn't have a code, it's a problem. You can't make good decisions about an industry that you can't measure. This is The Indicator from Planet Money. I'm Waylon Wong here with friend of the show, Sally Hersheps. Welcome back, Sally. Thank you so much. Today on the show, we go behind the scenes to learn about NAICS codes. We look at who applies, how they do it, and the consequences of not having a code.

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1:58It's even harder to do it efficiently. But with LinkedIn, you get all the tools you need to grow in one place. With LinkedIn, simplify your sales, marketing, and hiring so that you can actually run your small business. Learn more at linkedin.com slash indicator show. This episode is sponsored by Carvana, which offers the following message. Carvana Value Tracker lets you see what your car is worth, understand how the value changes, and sell your car when the time's right. Try it now on Carvana.com. If you want to talk about economic classification systems, there's really no better place to start than with a business reference librarian.

2:37Meet Georgetown University's Jennifer C. Bocher. Yeah, I wish I would have gotten questions from you because I could talk hours on this topic and I and I'm prepared to talk hours. I have some paper in front of me in case I needed to check my notes. But let's talk about it because it is one of my favorite topics. I think she was born to be on a podcast. Right. Jennifer says back in the 1930s, when ideas like gross domestic product were being developed, the federal government realized we needed a standard way to refer to different kinds of businesses. The Department of Commerce came up with one, standard industry classification codes.

3:14By the 1990s, though, Jennifer says, they weren't keeping up with all the emerging industries. And in 1997, we adopted a new version called NAICS codes. The codes are supposed to help us collect and monitor data accurately. It's like, you know, if you want to say what is the market size for a, you know, for a grocery store, how do you define a grocery store? Sounds simple enough, but Jennifer gives this example. Walmart. It sells groceries, but it's not classified as a grocery store. There's a separate NAICS code for a super center that sells things. It's different from a department store, right?

3:53So there's all those three different things, a grocery store, a department store, a super store, are all classified as different entities by the federal government. NAICS codes let industry analysts make apple-to-apple comparisons when they're looking at industry growth. There's an economic census done every five years that looks at every single business in the United States that uses NAICS. There's a long list of federal agencies that rely on them. Can you make a list? I know you mentioned some of them, but can you make a list of some of the federal agencies that use NAICS codes? Well, the Census Bureau, the Bureau of Labor Statistics, the Medicare people, because they want to say what is what is a hospital versus an urgent care, right?

4:35The Bureau of Economic Analysis looks at the GDP. Department of Transportation needs to know how many warehouses, how many trucks, you know, things like that. But there are sometimes problems with the codes. Like until 2022, there were no NAICS codes for marijuana, even though it was a legal business in almost two dozen states. Indoor marijuana cultivators there had to use 11419 or other food crops. So if you were like a cannabis industry analyst, how was it for you before cannabis was included at all? I occasionally had those questions as a research librarian, and you would say, okay, who are the aficionados?

5:20How many people subscribe to high times? There was associations, you know, so you contact that association and find out how many members. It was a lot of legwork. It was not as accurate. it. And that can be a problem. If you're an investor, how would you know if it was the right time to buy? Another issue for industries with no NAICS codes is federal contracts. In fiscal year 2025, almost$800 billion was awarded in contracts. But when a government worker is searching for a vendor to assign one of those plum contracts to, they filter by NAICS codes. According to the federal government, NAICS is a discovery tool.

6:03If your industry doesn't have its own code, it can make it much harder for your business to be found. And if you don't have a code, you just get this one window every five years to try to make the case that you need one. And we're not talking easy here. It takes years. You submit a public comment to the government through an online portal. After that, employees from the Bureau of Labor Statistics and the Office of Management and Budget huddle before publicly announcing the winners. If you're not awarded a code, you have to wait another five years and try again. That is the problem that Darren Hudima is facing now.

6:40He's based in Florida, a little outside of Fort Lauderdale, with a company called PuroClean. What does PuroClean do? PuroClean, we do fire, water, mold, biohazard, cleanup and remediation. The company comes in to clean up after disasters. It's very elemental. Think floods or fires. These types of businesses are part of an industry called emergency restoration. They even clean up crime scenes. Yeah, we're kind of the first responders that come in to start putting people's lives back together. And so what NAICS code, if you're a company who does that kind of work, you clean up after hurricanes, what is your option for NAICS codes?

7:22There isn't one. Our industry is relatively new. It's been around for four or five decades. And despite the increase in extreme weather and natural disasters, emergency restoration doesn't yet have a code. But boy, would Darren like to have one. NAICS codes are how commercial insurance companies figure out how much to charge a business, including the one where Darren works. It essentially determines what code that you fall into, which can affect your liability insurance that you need on your company. And it can affect workers' compensation insurance based on the health and safety risks associated to that code.

8:05Darren says for emergency restoration businesses, trying to pick a code can get convoluted. He says, like, if you do mold remediation, you'll get put under the asbestos NAICS code and asbestos falls under oil and gas, which has totally different risks associated with it than mold. I'm now getting put into a health and risk assessment that is going to drive my insurance a lot higher based on general liability and workers comp for my employees. And that's why back in 2025, restoration industry reps decided to put in an application. Darren was part of that process. Okay, so we're coming up almost on a year.

8:47And tell me about how much energy was, how much nerves? I don't know. I keep thinking about it like the Olympics. It's like every four or five years. How much anticipation was there for this? Well, there was a lot because of just what kind of impact that it has with the business owners, employees. Did you get any news? Okay. So in July, we finally got a notification that we weren't going to qualify. And that's July of 2026. Oh, no. Okay. Yeah. Darren says the federal government told them the industry wasn't big enough to warrant its own code. You're likely not going to qualify for this year. and basically said, well, you guys should consider the North American products classification systems code.

9:37What? Wait, they tried to pawn you off on another code? Yes. No way. So now the industry is hoping to come up with more data over the next five years so they can get their very own code. Oh, but you know who did get their own code? Spaceports. Airports are now airports and spaceports under one new code. And all this and all other new codes will be officially announced in January of next year. Oh, so it's time to build our spaceport. Take time to go to the moon. This episode was produced by Julia Ritchie and engineered by Jimmy Keeley. It was fact-checked by Leila Doss. Haking Cannon is our show's editor, and The Indicator is a production of NPR.

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