SOMERSET, N.J., May 6, 2010 – The Hildebrandt Baker Robbins Peer Monitor Economic Index (PMI) was flat for the first quarter of 2010 at a reading of 55. A PMI of 65 or greater indicates strong law firm market performance. Demand for law firm services remained weak, although demand did show signs of strengthening late in the quarter. Overall, cost reductions were unable to improve firm profitability in the face of sluggish demand and rate growth.
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.
Demand, as measured by billable hours, was flat in the first quarter compared with a year earlier but was aided by seasonally strong growth in March. However, despite signs of stabilization, demand remains barely above the historic lows recorded last year.
Chicago was the strongest major market in the first quarter, up 2 percent, marking its sixth consecutive quarter of improving demand. New York was up 1 percent from a year earlier, aided by improvements in litigation and corporate transactional work. London was up a strong 5 percent. Silicon Valley continued to rebound, up 1 percent for the quarter, although other California markets remained weak, including Los Angeles and San Francisco, both down 5 percent.
There were encouraging signs of growth in transactional practices, including M&A, which increased 9 percent compared with the year before. General corporate work, tax, capital markets, real estate and patent work also showed positive growth. Demand for litigation work was weak in the first quarter, down 2 percent, reflecting reluctance to engage in high-cost litigation options in a capital-constrained economy.
Rate growth, which measures rates for negotiated worked hours, continued to be weak, up only 4.6 percent from the same quarter a year earlier. However, much of the rate growth was a result of a shift in timekeeper mix reflecting reductions in head count among associates. In addition, collected rates were flat, and are expected to show only modest growth, or even a slight decline, for the year as a whole.
Attorney head count declined for a second consecutive quarter, down 3 percent. As a result, direct expenses dropped 6 percent – a record quarterly decline. Overhead expenses were also down, about 3 percent, falling an even greater 5 percent when calculated on a per-lawyer basis.
Productivity continued to rise, up 2 percent in the first quarter, as a result of head count reductions, deferrals and hiring slowdowns, as well as improved demand. The attorney replenishment was 0.8 for the first quarter, indicating that departing attorneys were being replaced at a ratio of only 0.8 to 1 as law firms continue to hold off replacing departing attorneys in order to reduce costs and maximize productivity.
“The first quarter was a mix of some encouraging signs along with continuation of some challenging trends,” said Mark Medice, program director of Hildebrandt Baker Robbins Peer Monitor. “Demand growth in transactional practices is helping to stabilize overall demand for legal services. However, difficulties in rate growth and collections continue to pressure top-line growth. Firms continue to stress cost controls, allowing them to maintain profitability levels against the current market conditions. However, firms are being increasingly challenged to find ways to achieve greater efficiency in their delivery of legal services in order to prosper in the ‘new normal’ of the marketplace.”
For more information about the PMI visit http://peermonitor.hbrconsulting.com.
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Hildebrandt Baker Robbins is a multidisciplinary consulting firm, helping law firms, legal departments and other professional service organizations plan, implement and measure key strategic, management, operations and technology goals. The firm serves major global law firms and corporations, and its consultants provide practical business and technology solutions from offices in New York; Washington, D.C.; Houston; Chicago; San Francisco; London; Somerset, NJ; Eagan, Minn.; Beijing; Hong Kong and Sydney. For more information, please visit www.hbrconsulting.com or send an email to info@hbrconsulting.com.
