EAGAN, Minn. — Overall demand for law firm services slumped in the first quarter of the year, even though many of the largest firms saw higher demand for their services, according to the Thomson Reuters Peer Monitor Index (PMI).
The PMI, which measures the relative health of the U.S. large law firm market, dropped eight points to 52 for the first three months of the year. Traditionally, first quarters are one of the strongest times of the year for the legal market. (The 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. A PMI of 65 or greater indicates strong law firm market performance.)
The Am Law 100, the segment of the market made up of the largest firms, had a strong quarter, with demand growing by 0.4%. In addition, rates for Am Law 100 firms surged an average of 4.5%, the strongest quarterly growth for any segment since Q4 2012. However, other market segments struggled in the first quarter. Am Law Second Hundred firms saw demand decline by an average of 0.3%, while Midsize firms dropped a steep 1.2%.
Overall, demand fell by an average of 0.5%, the weakest first quarter since 2013.
Download a free copy of the Q1 2018 PMI report here.
Worked rates (those rates that the client agrees to pay, on average, after discounts are applied to standard rates) grew by a strong 3.3% on average — the highest Q1 growth in four years — however, the gains were primarily seen among Am Law 100 firms. Rates for Am Law Second Hundred firms were up 2.7%, while Midsize rates rose 2.8%.
Productivity continues to slide following a rare positive quarter in Q4, falling 1.2% in the first quarter. This was despite the fact that headcount growth was the slowest since 2013, up only 0.7%.
“While firms in the Am Law 100 continue to see growth in both demand and rates, many other areas of the law firm market ran into some headwinds in the first quarter,” said Mike Abbott, vice president inClient Relations and Global Thought Leadership at Thomson Reuters. “Growth in corporate and other transactional practices are supporting the top tier of firms, while other firms showed difficulty growing billable hours or pushing through significantly higher rates. For those firms, a challenging year could lie ahead, as historically the first quarter often sets the tone for the year, and it’s difficult to fully recover from a weak start.”