Rates surge as law firm market rebounded in Q1: Thomson Reuters Law Firm Financial Index
A new report from Thomson Reuters, a global content and technology company, highlights that the law firm market rebounded in the first quarter due to improved demand and the highest rate growth in more than a decade. However, the recovery was uneven and uncertainty still remains as to the direction of the market going forward, according to the Q1 2023 Thomson Reuters Law Firm Financial Index (LFFI) powered by Financial Insights.
Demand for law firm services was barely positive, up 0.1%, but nevertheless snapped a three-quarter streak of negative demand growth. Meanwhile, worked rates surged by an average of 5.5% – the highest quarterly growth since prior to the Great Financial Crisis of 2008-09. For most of last year, rate growth lagged behind inflation; this marks the first time that rates have grown faster than the U.S. core inflation rate since Q3 2021.
The first-quarter recovery played out differently across the market segments. Am Law 100 firms were strengthened primarily on the basis of their high rate growth, up a record 7.2%. At the same time, however, Am Law 100 had the weakest demand among the segments, falling 1.5%.
Midsize, conversely, had the strongest demand, up 1.8%, and was the only segment with positive demand growth for the quarter. Midsize firms also had the strongest headcount growth – at nearly twice the level of Am Law 100, 4.9% vs. 2.8% – resulting in significantly higher direct expenses.
The report describes the upturn as welcome news, but cautions that despite the strong performance of litigation and labor & employment, the overall state of the market remains precarious and challenging for firms, given the potential threat of a recession.
“While the quarter was generally positive for law firms, the good news was not evenly distributed,” said Paul Fischer, president, Legal Professionals, Thomson Reuters. “Some firms achieved topline growth primarily through higher rates, while others were able to better manage capacity to accommodate more work. Given the current economic uncertainty, firms may continue trying differing strategies to suit their unique blend of practices, clients, and locations.”
A copy of the Q1 2023 LFFI report can be downloaded here.
