In a trend analysis, comparison charts can be used to compare a company to trends in its industry as a whole.
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 transformed into finished products. There are several methods used to collect, quantify, and interpret economic activity in an industry trend analysis. Generally, the analysis selects an industry based on its North American Industry Classification System (NAICS) code.
The date collected for an industry trend analysis depends on the purpose of the analysis.
Some industry trend analysis reports compare the performance of a particular business to the performance of that industry as a whole. Others are conducted to gain a better understanding of market dynamics and industry sector performance. Industry trend analysis helps business leaders, economists, and policymakers understand the structure of an industry. The vulnerabilities and opportunities that may exist in an industry can be revealed through analysis.
The data collected in an analysis depends on the purpose of the analysis. Economists analyze industry trends to provide feedback to government officials or industry leaders. Political systems are closely linked to economic systems, since the productivity of a nation is essential to sustain a population with essential and luxury goods. The government can use the data collected to give incentives to one sector rather than another. Business leaders conduct an analysis of industry trends to gauge their companies’ ability to remain competitive.
NAICS is used in an analysis to compare one sector to another or to group sectors within the scope of a larger analysis. Economic activity generated by the sale of finished goods is also included in a NAICS category. This system replaced the Standard Industry Classification (SIC) System used in the United States in 1997. This change was made to modernize the system to include categorization of how production occurs, not just what is produced. The change also made it possible to consider the industrial activity of Mexico, Canada and the United States as a whole.
NAICS organizes the industry categories using numerical codes. Classification codes mark the boundaries where one industry ends and another begins. The strict design is useful when comparing an analysis to the trend analysis of another industry category.
An example of how NAICS codes work can be understood by looking at the fishing industry. The seafood preparation and packaging industry sector has a code number 3117. The canning of seafood, an activity that falls under the broad category of seafood production in general, has received the code 311711, while the processing of fresh and frozen seafood has the code 311712.
Industry sector coding helps define specific boundaries for activities in each industry. These codes are structured so that a portion of an industry’s activity can be broken down as a separate economic statistic for trend analysis purposes. These statistics are crucial for performing the quantitative part of an industry trend analysis.