Demand for large and mid-sized law firm legal services fell 0.9% in Q2 of 2016 according to a recently released report by Thomson Reuters. Its quarterly Peer Monitor Index Report contains information about key law firm business metrics.
We’ve regularly blogged about the Peer Monitor system before, but to refresh you, it is a service that allows law firms to access their peers’ financial data (in the aggregate) in exchange for supplying their own data to the system for others to access (on a normalized and aggregated basis). Data from Am Law 100 firms, Am Law 200 firms, and mid-sized firms are included in the system. You can find more information about the Peer Monitor system here.
Key observations include:
- The drop in demand was the biggest quarterly drop in more than 3 years.
- The drop was across nearly all practice areas: real estate was down by 2.3%, tax was down 3.4%, litigation was down by 1.8%, labor and employment was down 0.3%. Corporate work was actually not down, but it was essentially flat (up by a mere 0.1%).
- Productivity (hours worked per attorney) was down 2.8%.
- Attorney headcount was up 1.7% and the replenishment ratio was 1.26, which means that capacity was increasing at a time of largely falling demand. It seems as though firms (wrongly) bet that Q2 and the rest of 2016 would bring continual increases in demand (as had been the case for the previous 2 plus years).
- Firms may need to reevaluate their staffing levels and hiring plans to avoid further drag on profitability.
- Though demand year-to-date is still positive (just barely at 0.1%), most of the key trends are not pointing in an encouraging direction as we move into the second half of the year.