Hildebrandt Baker Robbins Peer Monitor Economic Index Down Slightly In Second Quarter
Demand, Rate Growth Sluggish in Law Firm Market
Somerset, N.J. – The Hildebrandt Baker Robbins Peer Monitor Economic Index (PMI) was down one point in the second quarter of 2010 to a reading of 54. A PMI of 65 or greater indicates strong law firm market performance. Demand for law firm services was largely flat for the quarter and rate growth was weak. Overall, cost reductions were unable to improve firm profitability in the face of sluggish demand and rate growth.
PMI is a composite index of law firm market performance using real-time data drawn from major law firms in the United States and key international markets.
Demand, as measured by billable hours, was flat in the second quarter compared with a year earlier. Rate growth, which measures rates for negotiated worked hours, dropped to 2.6 percent from the same quarter a year earlier, marking some of the slowest rate growth seen by PMI. In addition, collected rates were flat, and are expected to show only modest growth, or even a slight decline, for the year as a whole.
Boston was the strongest major market, with demand up 2 percent. Washington, D.C., rebounded in the second quarter, with 1 percent higher demand compared with a year earlier. Chicago ended its string of six consecutive quarters of demand growth, down 1 percent. New York and San Francisco were also off 1 percent. Los Angeles was down 2 percent in the second quarter but has been showing steady improvement since last year. After showing slight positive growth earlier this year, demand in London was flat for the quarter.
Demand for litigation work was down 1.7 percent in the second quarter compared with a year ago; IP litigation was up 2 percent. Transactional practices remain a relative bright spot. General corporate work was up 4 percent, M&A increased 3 percent, tax work was up 2 percent and capital markets and real estate grew 1 percent.
Attorney head count declined for the third consecutive quarter, down 1.6 percent. However, head count reductions are moderating. The attorney replenishment ratio moved from 0.8 to 0.9 in the second quarter, indicating that firms were hiring 0.9 attorneys for every departing attorney. Overall, this indicates that firms are achieving a better balance between staffing levels and market demand. Direct expenses fell a steep 8 percent – the biggest quarterly decline PMI has seen. Overhead expenses were also down, about 3 percent.
Productivity rose 1.7 percent. Productivity gains have been slowing in recent quarters following the completion of recent head count reductions seen over the past year. Fall associate hiring and seasonally slower demand in the second half of the year may continue to pressure productivity numbers for the remainder of the year.
“While PMI is showing a market that is stabilizing in terms of demand, it is less encouraging that demand and rates remain largely flat even in the midst of positive but uneven growth in the overall economy,” said Mark Medice, program director of Hildebrandt Baker Robbins Peer Monitor. “Client pressure on pricing and struggles with realizations mean that collected rates continue to be basically neutral. Strength in transactional practices is helping to stabilize overall demand for legal services. Firms may have to adjust to current market conditions continuing for an extended period of time, and examine new approaches to firm structures, client management, pricing strategies and talent development to find new avenues of growth and profitability moving forward.”
For more information about the PMI and to review the latest PMI report, visit http://peermonitor.hbrconsulting.com.
A podcast discussing the second quarter PMI can be downloaded at http://media.libsyn.com/media/legalcurrent/LegalCurrent_Q210PMI.mp3.
Hildebrandt Baker Robbins
Hildebrandt Baker Robbins is a multidisciplinary consulting firm, helping law firms, legal departments and other professional service organizations plan, implement and measure key strategic, management, operations and technology goals. The firm serves major global law firms and corporations, and its consultants provide practical business and technology solutions from offices in New York; Washington, D.C.; Houston; Chicago; San Francisco; London; Somerset, NJ; Eagan, Minn.; Beijing; Hong Kong and Sydney. For more information, please visit www.hbrconsulting.com or send an email to firstname.lastname@example.org.
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