The strong 2018 performance by the large law firm market continues to gather steam after a second consecutive quarter of positive growth among key performance indicators, including demand & productivity. The result is a one-point increase in the Thomson Reuters Peer Monitor Index (PMI) to 63 for the third quarter of 2018.
Demand for large law firm services rose 1.9% — the best quarterly performance since 2011. Year-to-date, demand is now up 0.9%. By comparison, at this time one year ago, demand year-to-date was slightly negative.
In addition, demand growth is fairly broad-based, as the averages for demand growth were positive across Am Law 100, Am Law Second Hundred and Midsize firms in the third quarter. Litigation is a microcosm of that broad growth, as it continues to bounce back after several years of steady decline. Demand for litigation rose 2.5% on average in the third quarter and was positive for all three segments.
However, performance in the third quarter was largely progressive by size of market segment. Am Law 100, as a group, had the highest demand and rate growth, followed by Am Law Second Hundred and then Midsize. The only break in the pattern was that Am Law Second Hundred had the best productivity, followed by Am Law 100 and then Midsize.
Overall, worked rates rose by an average of 3.1%.
Productivity continues to improve, reflecting demand growth and restrained headcount growth. In fact, Q3 2018 was the first time in several years where all three segments had headcount growth rates that were less than the demand growth rate, helping to keep supply in better balance with demand. Direct expense growth rose to 3.4% while indirect expense growth declined slightly to 2.5%.
“We continue to see encouraging signs of strength in the large law firm market,” said Mike Abbott, vice president for Enterprise Thought Leadership and Content Strategy at Thomson Reuters. “Demand for legal services, rates and productivity are, on average, all improving this year.”
While some of the improvement is a result of clearing a lower bar set during a weaker 2017, the overall picture is markedly better so far this year, Abbott explained. “Despite uncertainties affecting the economy such as global trade wars, the law firm market is seeing better performance nearly across the board as we head towards the end of the year.”