PMI Rises in First Quarter: Biggest 1Q Demand Gain Since 2012

Topics: Law Firm Profitability, Law Firms, Midsize Law Firms Blog Posts, Midsize Law Firms Reports & White Papers, Peer Monitor, Reports & White Papers, Thomson Reuters

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EAGAN, Minn. — The Thomson Reuters Peer Monitor Economic Index (PMI), which measures the relative health of the large law firm market, rose two points to 52 in the first quarter — the first increase in PMI since Q3 2014. Higher demand for law firm services more than offset weak rate growth and a decline in productivity.

Demand — defined as the growth in billable hours — for large law firm services was up 1.2% in Q1 following a flat Q4 2015. It was the biggest first quarter gain in productivity in four years.

Worked rate growth was 2.7%, rebounding from a historically low rate growth mark in Q4 2015. However, collected realization rates fell in the first quarter, setting a new all-time low. (Worked rates are the negotiated rates as determined by the matter value. Worked rates are often referred to as agreed rates.)

Productivity declined 1.0% in the fourth quarter. Both direct and overhead expense growth accelerated slightly.

Among the practice areas, litigation showed signs of improvement. While litigation declined 0.4% overall in the first quarter, it was the smallest decline over the last three quarters. And the decline was entirely attributable to poor performance by Am Law Second Hundred firms. Both Am Law 100 and Midsize firms saw gains in litigation.

PMI

Meanwhile, transactional practices continue to move ahead. Corporate work was up 0.8%. Real estate rose 1.5%. Tax work, however, declined 0.4%. Patent prosecution, which has been another consistent strong performer recently, gained another 1.3% in the first quarter. Labor and employment was down 0.6%, its fourth consecutive quarterly decline. Bankruptcy dropped 4.1% for the quarter.

“A stronger quarter in many metrics was welcome news for the law firm market,” said Mike Abbott, vice president of Client Management and Global Thought Leadership at Thomson Reuters. “While challenges remain, such as weak rate growth and productivity, improved demand provides some optimism for the remainder of 2016. We are seeing that firms with well thought-out rate and practice strategies may be enjoying particular success in the current market environment.”

The PMI is produced by Thomson Reuters, and 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.