Since 2001, the legal industry has been characterised by double-digit profit growth, strong demand, solid productivity and controlled expense growth. That all started to change in the second half of 2007, and now the first half of 2008 looks very different. In a trend that started last year, expense growth this year has stayed relatively high, driven largely by continued growth in lawyer head count. Demand for legal services was also the weakest seen in the period from 2001 to 2008.
All told, for the first two quarters of 2008, profit margin compression – that is, expenses increasing faster than revenue – was the greatest it has been in the last eight years.
