Law firm leaders are taking a slightly dimmer view of the legal industry’s prospects in the second half of 2018 as their confidence in the U.S. and global economy wanes, according to a survey released Wednesday by Citi Private Bank.
Citi’s latest edition of its Law Firm Leaders Confidence Index showed that while top brass at firms remain a confident group, they have some concerns about the state of the economy, and that has had an impact on overall confidence. The Citi index runs on a scale of 0 to 200, where everything above 100 indicates confidence. Overall confidence among law firm leaders had an index score of 118 in the latest semiannual Citi report, down one point from the previous edition of the report released in February.
Despite the dip firm leaders were more bullish about their own firms’ prospects, particularly in the realm of demand for their services, Citi’s report showed.
The Citi report draws on the results of a survey conducted in April among managing partners, chairs, executive directors, chief operating officers and chief financial officers at 156 law firms. The firms included 65 of the industry’s top revenue earners within the Am Law 100, as well as 45 firms from the Am Law Second Hundred and 46 smaller or niche firms, according to Citi.
Nearly 70 percent of participants in the law firm leaders survey expected demand to grow in the second half of 2018. Among firm leaders, 8 percent said they expect to see demand grow by more than 5 percent, while 29 percent expected demand growth between 2 percent and 5 percent, and another 32 percent expected demand to grow by less than 2 percent.
Only 9 percent of firm leaders expected to see a drop in demand, while an additional 21 percent expected demand to remain stable in the second half of the year, according to Citi.
“The law firm leaders’ confidence in demand growth at their own firms remains one of the strongest results in the report,” Citi said.
Law firm leaders also took a rosy view of their firms’ financial prospects in the second half of the year, as measured by revenue, income and their realization rates on collecting client bills. The vast majority of firm leaders in the survey, some 82 percent, expected revenue to grow in the tail end of 2018. Among that group, 41 percent expected revenue to go up by 2 to 4.9 percent, while 21 percent of firm leaders expected 5 to 10 percent revenue growth. An estimated 3 percent expected revenue to grow by more than 10 percent.
“Law firm leaders also projected this additional revenue growth to translate into increased growth in net income,” Citi added.
Beyond Citi’s questions about the economy and firms’ financial prospects, the bank also asked firm leaders to weigh in on their expected hiring efforts, as indicated by lawyer head counts. Most of the survey respondents, 56 percent, expected the number of equity partners at their firms to remain the same or decrease in the second half of 2018. Among those who said their equity partner ranks would increase, 24 percent expected to grow by 1 to 3 percent, according to Citi.
Results differed on the nonequity front, where 49 percent of firm leaders said they expected to expand their nonequity partner ranks and the same percentage expected their nonequity partner count to remain the same or drop off.
On the associate front, about 70 percent of firm leaders said they expect the number of associates at their firms to increase, according to Citi. The largest contingent of that group, 38 percent of firm leaders in the survey, said they would expect only modest increases of 1 to 3 percent in associate head counts.
“Expected growth levels in both equity partner and associate head count moderated from the first half of 2017, but firms still expect to add head count to all lawyer categories,” Citi said.