An industry trend analysis is a qualitative and quantitative report on a specific sector of economic activity defined by national or international industry classification systems. Industry is any activity in which raw materials are processed into finished goods. There are various methods used to collect, quantify and interpret economic activity in an industry trend analysis. Generally, the analysis selects an industry according to its North American Industrial Classification System (NAICS) code.
Some industry trend analysis reports compare the performance of a particular business to that industry’s performance as a whole. Others are conducted to gain a better understanding of market dynamics and performance within the industry sector. Analyzing industry trends helps business leaders, economists, and policy makers understand the structure of an industry. Vulnerabilities and opportunities that may exist within an industry can be revealed through the analysis.
Which data is collected in an analysis depends upon the purpose for the analysis. Economists look at industrial trends in order to provide feedback to government officials or industry leaders. Political systems are closely intertwined with economic systems, as a nation's productivity is essential for supporting a population with essential and luxury goods. The government might use the data collected to give incentives to one industry rather than another. Business leaders conduct an industry trend analysis to measure their companies' ability to remain competitive.
The NAICS is used in an analysis to compare one industry to another, or to group industries within the scope of a broader analysis. Economic activity generated by the sale of finished goods is also included in an NAICS category. This system replaced the Standard Industrial Classification System (SIC) used in the U.S. in 1997. This change was made to modernize the system to include categorization by how production occurs, not just what is produced. The change also allowed industrial activity in Mexico, Canada, and the U.S. to be considered as a whole.
NAICS organizes industry categories using numerical codes. Classification codes mark the boundaries of where one industrial sector ends and another begins. The strict delineation is helpful when comparing one analysis to another industrial category's trend analysis.
An example of how NAICS codes operate may be understood by looking at the seafood industry. The industry sector of Seafood Product Preparation and Packaging has a numerical code of 3117. Seafood canning, an activity that falls under the larger category of seafood production in general, has been assigned the code 311711, while fresh and frozen seafood processing has the code 311712.
Coding industrial sectors helps set specific boundaries for each industry's activities. These codes are structured so that one part of an industrial sector's activity can be broken out as a separate economic statistic for trend analysis purposes. Such statistics are crucial in conducting the quantitative part of an industry trend analysis.