Large Law Firm Market Has Strongest Two Years Since Recession: Thomson Reuters Peer Monitor Index

The large law firm market has seen what is arguably the best two-year period since the end of the recession, according to Thomson Reuters Peer Monitor data. 2019 marked the first two year stretch in more than a decade where demand for law firm services rose by at least 1 percent each year. In addition, rate growth has been strong, helping to boost revenues.

In the fourth quarter of 2019, demand grew 1.1%, and worked rates rose 4.0% — the highest rate growth since 2011. However, productivity dropped 1.1% because of high headcount growth. All of this combined to trim the Thomson Reuters Peer Monitor Economic Index (PMI)[1] by three points to 53. The PMI had been up in the previous two quarters.

For the full year, demand was up 1.0% — the same as 2018. Rate growth, meanwhile, was significantly higher in 2019, up 3.8%, compared with 3.2% the year before.

Much of the growth has been fueled by strength in litigation and transactional practices, which together make up nearly two-thirds of large law firm billings. Demand for litigation rose 0.8% in 2019, which was slightly less than the 1.3% in 2018, but still represented two consecutive years of growth. Transactional practices — corporate, real estate and tax work — had their third strong year in a row, up 1.8%, compared with 1.5% in 2018 and 0.5% in 2017.

Productivity and expenses, however, dragged down profitability in 2019. Overhead expenses grew 4.8% in Q4, one of the highest levels seen in recent years. Productivity declined 1.0%, as firm accelerated hiring. Headcount grew 2.0% in in 2019 — more than double the rate in 2018 and one of highest levels of hiring in the last decade.

The Q4 2019 Peer Monitor Index mirrors the recent findings of the recent 2020 State of the Legal Market report which concluded that “during 2019, most U.S. law firms continued to perform reasonably well in the face of challenging market conditions.” The report was powered by Peer Monitor and produced by the Center on Ethics and the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute

“2019 may have been an even better year for large law firms in many regards than 2018 was,” said Mike Abbott, vice president, Market Insights and Thought Leadership, Thomson Reuters. “Growth was widespread across market segments, practice areas and geographies. And firms were able to regain some measure of pricing power. But competitive pressures and demands from clients for even greater efficiency remain. We’re seeing many firms take advantage of current conditions by investing in innovative technologies and business models to enhance their competitiveness moving forward.”

A copy of the Q4 2019 PMI report can be downloaded at https://legalprof.thomsonreuters.com/LEI-Peer-Monitor-Index-Q4-2019-Report

The PMI, produced by Thomson Reuters, 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. A PMI of 65 or greater indicates strong law firm market performance.

For more information on Peer Monitor, visit http://legalsolutions.thomsonreuters.com/law-products/solutions/peer-monitor.

[1] The PMI is a composite index score, representing the quarter-over-quarter change in drivers of law firm profitability, including rates, demand, productivity and expenses. Positive factors driving firm profitability will produce a higher score. A score exceeding 65 generally indicates a healthy operating environment.

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