The Impact of Classification Changes on Time Series Continuity

The Case of U.S. Monthly Retail Sales

Presented to

OECD Short-Term Economic Statistics Working Party

By: Thomas E. Zabelsky

Chief, Manufacturing and Construction Division

thomas.e.zabelsky@census.gov

June 26, 2006

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Importance of Time Series

• Historical description of occurrence or phenomena

• Analyzing and interpreting economic conditions

• Basis for forecasting

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Time Series Continuity

Requires –

• Continuous series of observations

• Standard methods and definitions

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Changing Industrial Classifications

The dilemma -

• Keeps pace with evolving industrial and business activities, but

• Interrupts continuity of time series data

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North American Industry Classification System (NAICS)

• Clean slate revision to earlier system

• First NAICS-based data published from 1997 Economic Census

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Impact of NAICS on Industry Classifications

• 1,170 industries – 15% increase over SIC

• Industries

- 350 new

- 390 revised

- 422 substantially unchanged

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Impact of NAICS on Retail Trade

• Old SIC division split into two NAIC sectors

- retail trade

- accommodations and food services• Retail trade

- 15 industries; 10 new

- eating and drinking places accounted for 10% in retail SIC

- retail-wholesale boundary issues

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Impact of NAICS on Retail Trade Data

Source: 1997 Economic Census

Sales ($billions)

NAICS 2,460.9

SIC 2,546.2

Change -85.3

Percent Change -3.3

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Sources of Change on NAICS-BasedRetail Data

Source:1997 Economic Census

Source of Change Sales ($billions)

Retail and Wholesale Boundary Change (move from wholesale)

+172.4

Food Services (eating and drinking)

(move to Accommodation and Food Services)

-251.9

Other changes (manufacturing, etc.) -5.8

Net change -85.3

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Restructuring Retail Time Series Data

• Restated 1992 Economic Census sales on a NAICS basis- assigned NAICS code to each employer establishment with an SIC that directly converted to NAICS (74%)- Matched employer establishments by ID and SIC to 1997 to obtain NAICS (6%)- Uncoded establishments of multi-establishment firms based on collective characteristic of all establishments (0.1%)- Random assignment (20%)- Exceptions

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Restructuring Retail Time Series Data (cont.)

• Restated monthly SIC-based estimates from January 1992 – March 2001

• Restated annual retail estimates from 1992 – 1998

• Distributions based on SIC to NAICS links developed in 1997 census

• Adjusted the restated monthly NAICS estimates prior to March 2001 to account for new (NAICS) and old (SIC) based differences

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Computing Benchmarked Estimates

• Restated annual estimates benchmarked to 1992 and 1997 Economic Censuses

• Minimized differences between the year-to-year changes of the restated annual estimates

• 1999 was computed using the published 1998 estimate by the ratio of the 1999 to 1998 estimates derived from the 1999 Annual Retail Trade Survey

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Computing Benchmarked Estimates (cont.)

Monthly Retail Sales• For January 1992 through March 2001, restated

estimates were changed in a manner that

- constrained the sum of the 12 months to equal the benchmarked, restated annual estimate for 1992 through 1999

- minimized the difference between the month-to-month changes of the restated monthly and benchmarked series

• Constant ratio applied to monthly estimates following December 1999