The beginning of 2013 has seen overall confidence in the state of the legal industry dip slightly among law firm managing partners, despite the same group’s growing optimism about which way the U.S. economy is headed.
That’s according to the latest Law Watch Managing Partner Confidence Index from Citi Private Bank’s Law Firm Group, which was released Wednesday and covers parts of this year’s first and second quarters. Citi surveyed 65 firm leaders about their confidence in their own industry and the broader economy and about how confident they feel in 10 key categories, including the outlook for profits, revenue, and demand. The respondents’ answers were plotted on a 200-point index, with 100 representing a neutral opinion and 200 representing absolute confidence. (According to a Citi spokeswoman, 22 of the respondents were from Am Law 100 firms, 16 respondents were from Second Hundred firms, and the balance came from outside those two lists.)
For the period covered by the survey, the participating firm leaders’ overall confidence settled at an average score of 113—a two-point drop from Citi’s previous report, which covered last year’s fourth quarter. A plurality of respondents, 47 percent, said their overall confidence remained unchanged since the last survey, while 33 percent said they felt "somewhat better." Respondents feeling "somewhat worse" represented 14 percent of the group, while 2 percent said they felt "considerably worse" and 4 percent felt "considerably better."
The slight decrease in overall confidence came despite a six-point uptick in respondents’ confidence in the economy at large, from 119 to 125, following an 18-point jump in the same category in the previous survey. Citi senior client adviser Gretta Rusanow tells The Am Law Daily that, while firm leaders seem to remain confident in the overall economy, they are less optimistic about more specific aspects of the legal profession—particularly demand for legal services. "They think that the economy’s improving, but they don’t see it necessarily translating into an uptick in activity for the industry," she says.
Confidence as it relates to demand projections dropped 14 points in the period covered by this survey, to 135. That drop-off dovetails with the findings contained in a separate report issued by Citi last week that examined the financial performance of more than 160 law firms in this year’s first quarter. That survey showed an average 3.3 percent decrease in demand among the participating firms, and a less-than-expected 0.2 percent increase in revenue. Writing about the results for The Am Law Daily, Citi senior client adviser John Wilmouth called those revenue numbers "disappointing" compared to the average 1.2 percent increase in revenues registered by firms during the first quarter of 2012.
Rusanow says it is important to note that, though confidence in demand was down significantly in the report released Wednesday, the overall average is still relatively high and only 10 percent of respondents predicted a decline in demand growth. Twenty-seven percent of respondents predicted that demand would remain unchanged.
"Even though you see that drop of 14, what that’s really telling you is that they’ve revised downward their demand projections. Nevertheless, we’re still seeing a majority of managing partners projecting growth of some form," Rusanow says. (The reference was to results showing that 46 percent of respondents predicted an increase in demand of 3 percent or less, while 17 percent of leaders responding to the survey predicted an increase in demand of more than 3 percent.)
Still, the more modest outlook when it comes to demand also appears to have affected firm leaders’ confidence with respect to law firm revenues and profits. Confidence that profits would increase in the year ahead dropped five points, to 95, while the outlook for revenue growth fell by 11 points, to 102.