PMI Q3 Analysis: The Many Peaks of Demand within Practices

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“Those at the top of the mountain didn’t fall there.”

Marcus Washling

The legal service industry has made headlines of late for the impressive demand growth witnessed in third quarter. The Thomson Reuters Peer Monitor Economic Index (PMI) rose three points to 56 buoyed by the 2.4% demand growth, which marks the highest quarterly demand growth since the Great Recession.

The PMI, produced by Thomson Reuters Peer Monitor, is a composite index of law firm market performance using real-time data to measure the relative health and stability of the large law market in the U.S. A PMI of 65 or greater indicates strong law firm market performance.

You can download a copy of the Q3 2019 PMI Report here.

Demand growth in Q3 was wide-spread across many practice groups. In fact, 14 of the 17 practices that represent 1% or higher of total hours worked, as tracked by Peer Monitor, had their strongest quarter of 2019. If you combine the proportion of total worked hours of the three practices which didn’t have their highest relative growth of 2019 in Q3, it equates to only 8%.

Which means that not only was demand wide-spread, it was more prevalent in large practices areas. Indeed, practices such as Corporate (All), which represents 25% of total worked hours, tend to have smaller variations between quarters due to the large firm presence and volume of hours worked every quarter. What makes the third quarter so special is that both the largest practice groups and many of the smallest ones experienced near historical growth levels in the period. The below table shows where some of our notable practices stack up in recent memory.

practice demand

Still not impressed?

  • Litigation for Q3 ranked third of our last 31 quarters, however what is more interesting is that the two stronger quarters occurred in Q2 and Q3 of 2018. Not only did the top three quarters for litigation occur in the last two years, but six of the top seven quarters since 2012 have occurred in that same time frame. Put more simply, Litigation has been growing at an above-average rate for the better part of the past two years.
  • Corporate (All) not only has been just impressive for Q3, it has been growing consistently for years. Over the last 31 quarters, Corporate work has seen quarterly contraction only five times, and only one of those quarters has been since 2014. Coming into September, the year-to-date figure for the past five years has been positive, with 2019’s YTD figure being the highest since 2015.
  • Labor & Employment has not seen a quarter with demand growth stronger than this year’s Q3 since Q1 of 2012. Which is also the last year where demand growth outpaced Labor & Employment’s 2019 growth rate, showing that the 1.9% growth is a welcome sight for this sector of the industry.
  • Bankruptcy has risen by the fastest pace since Peer Monitor began tracking the practice group in 2012. In fact, Q1 of 2019 marked the first positive quarter since that same date and now Q3 marks the second time that has happened. The bankruptcy practice has seen an average quarterly contraction over almost all of the past eight years of 4.3%. With recession worries at the front of the headlines, its worth monitoring if this trend continues or if the recent growth is instead based on the idea that the practice has finally hit the floor after a near decade of consecutive contraction.

These historic highs are just the tip of the iceberg when dissecting what takeaways should be drawn from our Q3 numbers. One thing that cannot be ignored, however, is that demand in the third quarter was a rising tide that lifted all ships.

Demand is ahead of the pace from 2018, as all segments enjoyed near 2% growth in Q3, and a majority of practices are improving. All of this are promising signs for the current fourth quarter and the immediate future of the U.S. legal market.