There seems to be no end to bad financial news for law firms: Demand is flat, revenue growth is expected to fall short of last year’s small gains, billable hours and realization rates are down and costs are rising.

And judging from law firms’ recruitment for their 2013 summer class, no one is expecting the landscape to change dramatically anytime soon. An informal survey of 11 Am Law 200 firms conducted by The Recorder found that the appetite for summer associates has shrunk by nearly 40 percent from 2007. For law students, the good news is that recruitment seems to have stabilized. The good news for firms is that with smaller class sizes, it’s much easier than in the boom days to get the pick of the litter.

Most of the firms will welcome Bay Area summer classes next year of about the same size as in 2012.

But several firms did diverge from last year’s precedent. An above-average acceptance rate yielded an abnormally large 2012 class of 43 summer associates in the region for Wilson Sonsini Goodrich & Rosati, law school recruiting manager Stacy Trzesniewski said. The firm’s Bay Area class for the coming summer will be about half that size.

Jones Day, meanwhile, is doubling down. To power its plans for expansion in California, the firm hired 44 percent more summer associates than last year in the Bay Area, said Robert Mittelstaedt, partner in charge of the San Francisco office. As many of its competitors are retrenching, the firm sees a chance to claim a greater share of the talent pool, Mittelstaedt said.

“We think we will grow in the future as much as we have in the past, and we want to be ready for it,” he said. “We have a hard time passing up good talent.”

Yet even a firm set on growth like Jones Day is hiring far fewer summer associates than it did before the recession. And most firms have slashed their recruitment further. Among the 11 firms surveyed, summer hiring has fallen by 38 percent on average from 2007 to 2013, which is consistent with nationwide statistics.

And for some firms, the decline was even steeper. Pillsbury Winthrop Shaw Pittman will have seven associates in its Bay Area offices in 2013, less than a third of the 25 it recruited for summer 2007. Orrick, Herrington & Sutcliffe will have 17 summer associates in the region in 2013, a 59 percent decline from the 41 it brought on board for 2007.

Anemic recruiting was among the factors that led the National Association for Law Placement to deem 2011 the worst entry-level job market in more than 30 years. Although it is too soon to produce statistics for fall 2012, NALP executive director James Leipold said he expects the volume of hiring done by firms to be “flat to a slight uptick” compared to last year.

Powered by demand for legal services in Silicon Valley, the Bay Area appears to be marginally outperforming other markets, Leipold noted. Career development officials at UC-Hastings, UC-Berkeley, UC-Davis and Santa Clara University said they saw a slight uptick in the number of employers who came to campus for formal recruitment.

Because summer associate posts typically translate to job offers, the shrunken class sizes reflect firms’ concerns about future demand for legal services, Leipold said.

Law firms made similar cuts to their summer programs after previous recessions. But this time, the downturn is not the only culprit, said law professor William Henderson, noting that the number of people employed in the legal sector peaked in 2004 and has been falling ever since. Outsourcing and automation have eliminated much of the work that new associates did in the first place, he added.

“It’s a perfect storm to sabotage entry-level hiring,” said Henderson, who directs the Center on the Global Legal Profession at Indiana University’s Maurer School of Law. “It came back before, but I just don’t think that’ll happen this time around.”

A SILVER LINING

The legal marketplace may be in turmoil, but there’s always a silver lining — at least for hiring partners. With fewer spots to fill, firms can confine their searches to the top students at the top law schools.

“It’s definitely a buyer’s market right now,” said partner Jahmal Davis, who manages recruitment for Hanson Bridgett, which hired three associates for next summer, down from eight in 2007.

Since the recession, Orrick has aggressively pursued clerks in the Supreme Court and the circuit courts, said partner Stephen Venuto, who handles on-campus recruitment for the firm. Those candidates now make up about a quarter of the firm’s new hires.

“Clerks can command respect right away,” Venuto said.

Not only can firms afford to be more selective, they need to be: Students today are more likely to accept an offer — and more likely to stick around for years.

“We’re hiring for keeps the first time,” said Hanson Bridgett’s Davis.

When firms’ demand for top students exceeded the supply, as in 2006 and 2007, nearly a third of summer associates declined jobs to entertain more offers in their third year of law school, NALP’s Leipold said. Now that the market for third-year students has disappeared, approximately 85 percent of summer associates accept their job offers, he noted.

“Now, when I offer summer associate positions to 10 students, I’m expecting all 10 to accept and stay,” said Venuto. “I’m much happier with the way recruiting has been working out.”

Before the recession, it was common for an associate to leave within a few years of joining a firm, Leipold said. That attrition has virtually evaporated.

OCI’S WANING IMPORTANCE

In this economic climate, firms are less patient as young lawyers gain experience and clout. Clients enjoy greater bargaining power after the recession, and many are unwilling to pay for work done by first- and second-year associates. And it’s much easier to hire lateral associates, trained elsewhere, should the need arise.

Orrick’s hiring of summer associates in the Bay Area is slowly rebounding with the economy, Venuto said, but summer associates account for a smaller share of the firm’s new hires than in past years.

Wheeling, W.Va., is one place where Orrick’s associates are growing in numbers, Venuto noted. The low cost of living there — and the creation of a tier of nonpartner-track, low-salaried lawyers — enables the firm to bill lower rates.

“Some companies don’t want to pay for a first-year associate to do their work,” he said. “But they will pay for a first-year in Wheeling to do it.”

Clients’ demands give firms all the more reason to prioritize lateral hires over organic growth. And students are feeling the strategy’s effects.

Sari Zimmerman, assistant dean for the Office of Career and Professional Development at UC-Hastings, said about 20 percent of students find their jobs through the on-campus interview process today. Twice as many did at the peak of the market.

“I’ve heard some career services professionals say that OCI is dying,” said Indiana University’s Henderson. “For schools outside the top tier, it is becoming a smaller and smaller avenue to place students.”

Some firms seem to have forgotten that laterals have to get their start somewhere. Today, many law school graduates “aren’t getting the chance to turn into midlevel associates,” Henderson said. “It’s going to cause law firms some pain in the future because they won’t have the talent developed.”

Opportunities have not dwindled for candidates at the top of their classes. The students with the highest GPAs at UC-Berkeley School of Law still receive eight to 10 offers for the summer, as they did before the recession, said Terrence Galligan, assistant dean of career development at UC-Berkeley.

“Even if the market were to shrink more, I don’t think that would change,” he said.

Galligan noted that he has heard some law firms discuss retooling recruitment to emphasize candidates’ personalities. But that seems to be just talk for now.

Looking good on paper is as important today as ever. To cut costs in recent years, Littler Mendelson has limited its participation in on-campus recruitment at most law schools to resume collection, said Karen Herz, senior director for attorney development and recruiting.

The battle for talent forced firms to change their ways for a time. To reach their quotas for summer associates prior to the recession, firms recruited at law schools they had never visited before and reached further down into classes, Leipold noted. That is no longer necessary.

“They’re able to go back to their bad habits,” Leipold said.

That leaves a lot of would-be lawyers out in the cold.

Andre Krammer, a third-year student with a Ph.D in physics on a four-year track at Santa Clara University School of Law, said he saw the same small group of students at his interviews with various firms during on-campus recruiting. He said he was one of just a few of his friends who landed summer associate positions through the on-campus process.

“They are disappointed because it is expected that you get a summer position through OCI,” he said. “And now they are kind of scrambling to find other venues.”

Krammer noted that all of his friends who are in the last years of their programs have lined up employment for after graduation, though some will not be taking the Big Law jobs that they envisioned when they enrolled.

Susman Godfrey associate Patrick Bageant went through OCI at UC-Berkeley in fall 2008, just before the balance of power shifted. Firms were still bullish about the market and recruiting large classes. In conversations with partners, the collapse of Lehman Bros. was just an icebreaker, he recalled.

Though Bageant graduated from UC-Berkeley in 2010, he still moderates Nuts & Boalts, a blog where students document their experiences during OCI. He is amazed by how much the process has changed since he went through it. But each year, he sees students wising up to the market.

“There’s just as much hand wringing,” he said, “but less of a sense of personal rejection if it doesn’t work out.”