The NAICS 2022 update and its effect on BLS employment estimates in the retail trade sector

According to the U.S. Bureau of Labor Statistics (BLS) Current Employment Statistics (CES)–National program, which produces the payroll employment data in the closely watched monthly Employment Situation news release (commonly referred to in the media as the “monthly jobs report”), retail trade accounts for approximately 10 percent of total nonfarm employment.² The retail trade sector comprises establishments that sell merchandise in small quantities to the general public, such as food and beverage retailers, general merchandise retailers, and gasoline stations.³

With the rise of e-commerce over the past several decades, the retail trade landscape has shifted away from establishments offering products and services either in physical stores (store retailers) or through other channels (nonstore retailers) to establishments offering products and services through a wide variety of channels. For example, a single establishment classified as a general merchandise retailer may now sell merchandise both in physical stores and online. This shift in the economic activity of retailers raised concerns about the industry structure of retail trade under NAICS. During the most recent review and update, NAICS removed the distinction between store and nonstore retailers.⁴

The CES program uses NAICS in its published detailed industry estimates of employment, hours, and earnings, so updates to the NAICS structure can subsequently impact CES estimates. With the release of the January 2023 data on February 3, 2023, the CES–National program implemented publication changes and updated the national nonfarm payroll employment series to reflect the transition from NAICS 2017 to NAICS 2022.⁵ This article discusses the retail trade structure under NAICS 2017, examines the effects the NAICS 2022 update had on the retail trade structure, and explains how the NAICS 2022 update affected retail trade employment.⁶

The structure of retail trade under NAICS 2017

NAICS uses industry codes to classify establishments by their primary economic activity. NAICS industry codes range from two to six digits, with the broadest industry classification occurring at the two-digit level, known as “sectors.”⁷ The NAICS codes for the retail trade sector are 44 and 45.

With each additional digit in the NAICS code, the classification becomes more detailed. The third digit represents the subsector; the fourth represents the industry group; the fifth represents the NAICS industry; and the sixth digit represents the national industry (i.e., the United States, Mexico, or Canada). Although the CES program bases its published industries on NAICS, the CES industries are not identical to the NAICS industries.⁸

This article refers to three-digit NAICS codes as “industries” and four- to six-digit NAICS codes as “components” (of those industries).

Under the NAICS 2017 structure, retail trade comprised 12 industries with three-digit NAICS codes. (See table 1.) The first 11 of those 12 industries included establishments engaged in retailing through physical stores and were grouped across broad product lines.

The 12th industry, nonstore retailers, aimed to capture all economic activity in retail trade occurring outside the in-person store setting. The industry included five components: electronic shopping and mail-order houses, vending machine operators, direct selling establishments, fuel dealers, and other direct selling establishments. (See table 2.)

The purpose of the electronic shopping and mail-order houses component was to capture retail activity made primarily through nonstore means, such as web retailers, catalogs, toll-free telephone numbers, television infomercials, and other mail-order houses or electronic media.⁹ Vending machine operators included establishments primarily engaged in retailing merchandise through vending machines they service.¹⁰ Direct selling establishments aimed to capture the remaining nonstore retail economic activity, including establishments that typically go to the customers’ location, rather than the customer coming to them.¹¹ Within this component, fuel dealers comprised establishments engaged in retailing fuel through direct sales to consumers; examples include bottled gas dealers, coal dealers, and firewood dealers.¹² In addition, other direct selling establishments included those that retail merchandise (other than food for immediate consumption and fuel) through direct sales to customers. Examples include frozen food and freezer meal plan providers, party plan merchandisers, and coffee-break supplies providers.¹³ Although the components of nonstore retailers varied in terms of their primary economic activity, the purpose of classifying establishments within the industry was to capture only nonstore retail activity.

Economic Classification Policy Committee review of NAICS 2017

During its review of NAICS 2017, the U.S. Office of Management and Budget (OMB) Economic Classification Policy Committee (ECPC), which is responsible for maintaining and reviewing NAICS, raised concerns about the growing prevalence of e-commerce and how the pervasive nature of electronic shopping created confusion in classifying certain industries.¹⁴ As mentioned previously, an establishment classified within the general merchandise stores industry might offer products through channels other than its storefront, such as online ordering, either with home delivery, in-store pickup, or delivery to temporary storage lockers. Because the NAICS 2017 structure classified such establishments as store retailers within the broader category general merchandise stores, all sales were registered to the storefront. As in this case, the ECPC suggested that the NAICS 2017 industry structure did not always result in the retail trade industries accurately capturing the intended retail economic activity.

To reflect the many changes in retail trade over the past decade, the ECPC recommended eliminating the distinction between store and nonstore retailers and reclassifying the components of nonstore retailers.¹⁵ Ultimately, the OMB accepted this proposal, and the NAICS 2022 structure removed the distinction between store and nonstore retailers in retail trade.¹⁶  

In addition to eliminating the distinction between store and nonstore retailers, 4 three-digit NAICS 2017 industries combined into 2 new NAICS 2022 industries, reducing the number of three-digit industries within retail trade from 12 to 9.

CES structure of retail trade under NAICS 2022

Following the final decision from the OMB on the recommendations put forth by the ECPC, the CES–National program updated the national nonfarm payroll employment series from NAICS 2017 to NAICS 2022.¹⁷ As displayed in table 3, the NAICS 2022 structure of retail trade contains several changes to CES industry titles and NAICS codes, combines several NAICS 2017 industries into new NAICS 2022 industries, and removes the distinction between store and nonstore retailers.

CES industry titles and NAICS codes updates

In addition to the update to NAICS 2022, the CES–National program also broadly updated its industry titles to align more closely with the corresponding NAICS industry titles.¹⁸ Within retail trade, several industries received new titles. As shown in table 3, the update removed the distinction between store and nonstore retailers by referring to establishments as “retailers” instead of “stores.” For example, the NAICS 2017 industry title food and beverage stores was updated to food and beverage retailers. The only two industries that contain a reference to a “store” are department stores and gasoline stations with convenience stores. In these two industries, the use of the word “stores” more accurately reflects the industry’s economic activity. This update further reflects how the NAICS 2022 structure of retail trade classifies industries by broad category line, including both store and nonstore activities.

In addition, the broad content and scope changes within retail trade resulted in several NAICS code changes, with six of the nine NAICS 2022 industries in table 3 receiving new codes. The “Update to NAICS 2022” section of the CES–NAICS page provides further detail on the several ways the conversion from NAICS 2017 to NAICS 2022 affected the CES industry codes.¹⁹

Combining NAICS 2017 industries into NAICS 2022 industries

The NAICS 2022 update combined the NAICS 2017 industries furniture and home furnishing stores (NAICS code 442) and electronics and appliance stores (NAICS code 443) into the new NAICS 2022 industry furniture, home furnishings, electronics, and appliance retailers (NAICS code 449). In addition, the update combined sporting goods, hobby, book, and music stores (NAICS code 451) and miscellaneous store retailers (NAICS code 453) into the new NAICS 2022 industry sporting goods, hobby, musical instrument, book, and miscellaneous retailers (NAICS code 459). (See table 4.)

Under the NAICS 2022 structure, most of the combined NAICS 2017 industries are still available under more detailed industry codes. (See table 5.) For example, the three-digit NAICS 2017 industry furniture and home furnishing stores (NAICS code 442) is available as a four-digit NAICS 2022 industry, with a new title and NAICS code: furniture and home furnishings retailers (NAICS code 4491). The three-digit NAICS 2017 industry electronics and appliance stores (NAICS code 443) is also available as a four-digit NAICS 2022 industry, with a new title and code: electronics and appliance retailers (NAICS code 4492).

Similarly, the three-digit industry sporting goods, hobby, book, and music stores (NAICS code 451) now exists at the four-digit level under the NAICS 2022 structure, with an updated title and NAICS code: sporting goods, hobby, and musical instrument retailers (NAICS code 4591). (See table 6.) With this update, the five-digit NAICS 2017 components still exist, but the industries received new titles and NAICS codes. For example, the NAICS 2017 component sporting goods stores (NAICS code 45111) is now sporting goods retailers (NAICS code 45911) under the NAICS 2022 structure.

In some instances, the NAICS 2017 industry no longer exists under the NAICS 2022 structure. For example, the NAICS 2017 industry miscellaneous store retailers (NAICS code 453) does not exist under the NAICS 2022 structure. However, all four of its components exist under the new structure, with new titles and codes: florists (NAICS code 4593); office supplies, stationery, and gift retailers (NAICS code 4594); used merchandise retailers (NAICS code 4595); and other miscellaneous retailers (NAICS code 4599).

Eliminating nonstore retailers

To remove the distinction between store and nonstore retailers, the NAICS 2022 update removed the NAICS 2017 industry nonstore retailers, and the CES–National program reclassified the employment from its components within the appropriate NAICS 2022 industries.

During the conversion from NAICS 2017 to NAICS 2022, the CES–National program reclassified employment from electronic shopping and mail-order houses, vending machine operators, other direct selling establishments, and fuel dealers. As described in the 2022 benchmark article, about 15 percent of employment (68,000 jobs) in electronic shopping and mail-order houses (NAICS 2017 code 4541) moved into corporate, subsidiary, and regional managing offices (NAICS 2022 code 551114), which is part of the professional and business services sector.²⁰ The remaining employment from electronic shopping and mail-order houses and 100 percent of employment from the other three components were reclassified within retail trade.

Employment from two of the four components of nonstore retailers was reclassified broadly across retail trade; employment from electronic shopping and mail-order houses (NAICS code 4541) and from other direct selling establishments (NAICS code 45439) was reclassified within eight of the nine NAICS 2022 industries by broad product line. Chart 1 displays the ratio of employment reclassified from these two NAICS 2017 industries within NAICS 2022 retail trade industries. The ratios in chart 1 do not include the 15 percent of employment in electronic shopping and mail-order houses reclassified into the professional and business services sector. As outlined in an official BLS–CES notification, “industries that move directly and completely from a NAICS 2017 CES industry to a NAICS 2022 CES industry have a ratio of 100. NAICS 2017 CES industries that moved only a portion of their employment from the old NAICS 2017 CES industry to a new NAICS 2022 CES industry have ratios of less than 100.”²¹

Sporting goods, hobby, musical instrument, book, and miscellaneous retailers received the largest share of employment from the reclassification of electronic shopping and mail-order houses (46 percent). The remaining reclassified employment was widespread, led by general merchandise retailers (16 percent); clothing, clothing accessories, shoe, and jewelry retailers (13 percent); health and personal care retailers (12 percent); and furniture, home furnishings, electronics, and appliance retailers (9 percent).

Similarly, sporting goods, hobby, musical instrument, book, and miscellaneous retailers received the largest share of reclassified employment (46 percent) from other direct selling establishments. Food and beverage retailers also received a notable portion of employment (24 percent) from other direct selling establishments, with the remaining reclassified employment being widespread.

In contrast to electronic shopping and mail-order houses and other direct selling establishments, the other two components of nonstore retailers reclassified 100 percent of the component’s employment into one three-digit NAICS 2022 industry. Employment from vending machine operators was reclassified completely within food and beverage retailers (NAICS code 445) at the six-digit level as vending machine operators (NAICS code 445132). In addition, employment from fuel dealers was reclassified completely within gasoline stations and fuel dealers (NAICS code 457) at the four-digit level as fuel dealers (NAICS code 4572). (See table 7.)

Total impact on CES employment in retail trade

Although the NAICS 2022 update notably affected the structure of retail trade, and the CES reclassifications changed the employment composition of the three-digit NAICS 2022 industries, the impact on employment at the two-digit level of retail trade was less prominent; all employment from nonstore retailers was reclassified within the retail trade sector, except for about 15 percent of electronic shopping and mail-order houses.

Conclusion

The NAICS 2022 update and the subsequent changes made by the CES–National program substantially affected the structure of the retail trade sector. These updates included several changes to retail trade NAICS codes and CES industry titles; a decrease of three-digit industries from 12 to 9; and the elimination of the distinction between store and nonstore retailers. As part of the NAICS 2022 conversion, the CES–National program reclassified employment to fit the NAICS 2022 classifications. Most of the employment from nonstore retailers was reclassified within retail trade, except for 68,000 jobs that were reclassified within the professional and business services sector. The new classifications within retail trade resulted in substantial employment reclassifications, affecting every three-digit industry. However, the impact at the sector level of retail trade was less salient.