The large law firm market saw strong growth in demand and rates in the first quarter, a robust foundation at the onset of the COVID-19 outbreak
. The Thomson Reuters Peer Monitor Economic Index (PMI) rose four points to 57. Looking backward, it capped a string of eight consecutive quarters
of either positive or flat demand growth the first extended period of such performance since the end of the Great Recession. It's important to note that the bulk of the social and economic impact of the outbreak in the U.S. only began in the last few weeks of the quarter.
Demand was up a strong 2.0%. Rate growth also was strong up 4.1% but growth was primarily concentrated among the largest firms.
While law firms are currently trying to come to grips with the COVID-19 situation, the market is coming off of a strong base, said Mike Abbott, vice president, Market Insights and Thought Leadership, Thomson Reuters. Significant changes are taking place at many firms. Law firm operations are adjusting to accommodate work-from-home and office closures. Many clients are dealing with disruptions in their business. Court closures are causing delays in hearings. Most of these changes did not start coming into effect until mid-March. The full impact will become more apparent in subsequent quarters.
We know from experience in previous economic downturns that demand for legal services will shift among various practices as clients' needs change, said Abbott. Firms will examine all aspects of their operations to maximize efficiency, keep costs under control, and ensure they are providing maximum value to their clients. In our discussions with firms, we know that many of these changes are taking place, as firms adjust both their short-term and long-term strategies to the changing conditions.
In the first quarter, corporate work and real estate were among the strongest practices, while litigation was slightly positive. IP practices and tax work were generally lower.
Productivity fell, as the robust demand was not sufficient to overcome continued growth in headcount. Many firms are already adjusting hiring plans and summer associate programs, so the outlook for lawyer growth is unclear in the near term. Direct expenses rose in the first quarter, owing to the growth in headcount, while overhead expenses fell.
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 Press Release Distribution Services United States and key international markets.
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