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Law Business Index Confirms It's Nasty Out There
The National Law Journal
May 12, 2009
This just in: The legal industry is still reeling from the dismal economy.
Demand for legal services continued to fall during the first quarter of 2009, according to the latest Hildebrandt International Peer Monitor Index. The index, released on May 11, tracks demand for legal services, attorney productivity, billing rates and direct and overhead expenses at law firms in 33 markets to gauge the overall health of the industry and identify trends.
Throughout the quarter, the demand for legal services dropped by more than 8 percent compared to the first quarter of 2008, the index found. That decline was sharp in January and February but flattened somewhat in March -- potentially a sign that the downward trend has bottomed out, according to the report.
Still, it was too soon to tell whether the results were significant or just a temporary blip in the pattern, the report cautioned.
Relative demand varied. For example, San Francisco saw demand decline during the quarter by a little more than 1 percent, while Chicago and Los Angeles each experienced an 8 percent drop in demand for legal services. That decline was even steeper in New York, Washington and London where the declines were 9.5 percent, 12 percent and 12.5 percent, respectively.
It's difficult to explain the relatively strong showing by San Francisco, said Mark Medice, national manager of the index. The numbers could reflect that former partners of now-defunct firms Heller Ehrman and Thelen have joined new firms and brought along their old clients, rather than that San Francisco is bucking the national trend.
"Yes, it's better there right now, but we aren't going to suggest that everybody go open up a law office in San Francisco," Medice said.
Billing rate growth slowed considerably during the first quarter. During each of the past four years, law firms raised rates by an average of about 7 percent a year; that has been a key to their profitability, Medice said.
However, rate growth slowed during the fourth quarter of 2008, and that trend has gained momentum this year, Medice said. Overall, law firm rate growth was up by a little less than 3 percent during the first quarter of 2009, compared to a year ago.
"The biggest change this quarter is rates," Medice said. "We've seen a substantial break from the pattern."
Some cities fared a little bit better in their ability to raise rates. Large markets including Los Angeles, New York and Washington showed a 4 percent growth in rates during the first quarter -- slightly better than the overall average rate growth.
Just as demand for legal services was dropping, attorney productivity was falling as well, according to the index. Attorney productivity, measured by hours billed per lawyer, was down by 11.5 percent compared to the first quarter of 2008. Attorney layoffs should improve the productivity numbers, but firms have yet to feel the full effect of those layoffs because of lags in departure dates, the report said.
For all the bad news, the index found a few bright spots. Bankruptcy activity was up by more than 13 percent compared to one year earlier. Firms have taken aggressive steps to reduce the growth of their overhead and direct expenses and likely will continue to do so throughout 2009, the report said.
