SOMERSET, N.J., May 11, 2009 – The legal market continues to experience weak demand and rate growth, with some potential signs of a market bottoming. The Hildebrandt Peer Monitor Economic Index (PMI) fell one point in the first quarter to a reading of 40, virtually flat compared with the fourth quarter of 2008. A PMI of 60 or greater indicates strong law firm market performance.
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. As the economy slows, PMI has been trending lower, dropping in five of the last six quarters.
Demand, as measured by billable hours, was down 8 percent in the first quarter compared with a year earlier. However, while demand fell precipitously in January and February, there was a flattening in March. Although this is a promising sign, it remains to be seen whether it is merely a blip in the pattern or a decisive break from the downward economic trend. Bankruptcy work was strong in the first quarter, while litigation work was flat. Intellectual property and labor & employment practice areas were weaker in Q1 2009 than in 2008.
Rates grew only 2.9 percent in the first quarter, down sharply from the 7.9 percent growth a year ago. This marks the slowest rate growth in the four years that PMI has been tracking data. Major markets, including New York, Los Angeles and Washington, D.C., were slightly better than the industry average, but still down sharply from a year ago.
Firms are taking aggressive steps to control expenses to mitigate the impact of slowing demand. Headcount is being reduced and compensation schemes are being adjusted to bring costs more in line with revenues. While overall costs grew at the slowest rate in three years, some expenses, such as office expenses and marketing and client development expenses, actually declined in the first quarter on an absolute per-lawyer basis.
“Law firms continue to deal with weak demand and rate growth,” said Mark Medice, program director of Hildebrandt Peer Monitor. “The coming months should provide clearer indications of whether demand may have finally bottomed out. However, we expect to see continued volatility in demand and rates in the months ahead.”
“We expect that 2009 will be a challenging year for firms”, said Lisa Smith, vice president, Hildebrandt. “However, the current environment has also created an opportunity for firms to think about ways to better align their business model with their competitive market position. One example is alternative pricing strategies to better meet the needs of clients. Firms may also be looking at more flexible and innovative staffing and compensation schemes, such as merit-based compensation for associates, to help balance revenue and costs.”
For more information about the PMI and to review the latest PMI report, visit http://peermonitor.thomson.com.
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