Here’s some good news for your upcoming holiday parties: Demand at large law firms grew more in the third quarter of 2018 than any three-month period since 2011, according to the Thomson Reuters Peer Monitor Index.
So far this year, demand has risen 0.9 percent, which may sound miniscule but represents the strongest performance since 2014. Demand had fallen through three quarters in each of the past two years—down 0.6 percent last year and down 0.3 percent in 2016, Thomson Reuters said.
The report is in line with other surveys this year that have said 2018 is shaping up to be one of the strongest post-recession years for law firm financials. Citi Private Bank said in August that the first half of the year saw the industry grow revenue by 5.5 percent, which was the most since 2007.
Most reports, including the Thomson Reuters survey, point to a booming economy, tax reform and a busy M&A market as reasons for the strong law firm market.
That strong market appears to be increasingly benefiting firms of all sizes. While most of the industry’s demand growth has come in recent years from the highest end of the market, the Am Law 100, the Thomson Reuters report says demand lifted for firms of all sizes last quarter. That marks the first time since 2015 that Am Law 100, Second Hundred and midsize firms all experienced demand growth in the same quarter.
Still, Am Law 100 firms are outpacing their peers. With 3.8 percent growth in billable hours in the third quarter, demand for the 100 largest firms by revenue is now up 2.5 percent on the year. Am Law Second Hundred firms saw demand grow 1.9 percent in the third quarter to bring their yearly growth to 0.5 percent. Demand for midsize firms’ time rose 0.5 percent in the third quarter and is now up 0.4 percent year-to-date.
Demand was not the only bright spot: Rates and productivity also saw gains, bringing a Thomson Reuters-developed composite score for the health of the legal market up to a 63 out of 100, from 62. It marked the first time that score has risen in consecutive quarters since early 2015.
On the rates front, average worked rates—a figure of what lawyers charge on their bills—rose 3.1 percent in the third quarter to bring the yearly growth to 3.3 percent compared with this time last year. It was the fifth consecutive quarter of worked-rate growth of 3 percent or higher.
Worked-rate growth was also more evenly dispersed among firms. All segments (Am Law 100, Second Hundred and midsize firms) saw increases of at least 3 percent.
Realization rates against those rates—the percentage of a worked rate that a firm collects—also rose in the third quarter to 89.4 percent. That is a slight improvement over last year, but has yet to recover from post-recession highs.
Productivity rose 1.3 percent in the third quarter as a result of improved demand and restrained head count growth, Thomson Reuters said. Head count for the Am Law 100 is up 1.6 percent year-to-date after growing by 2.1 percent in the third quarter. Am Law Second Hundred and midsize firms have seen head count grow by 0.5 percent and 0.2 percent, respectively, for the year.