The Peer Monitor Index (PMI) set records in the 2nd quarter of 2021, although given the pandemic-hobbled year of 2020, the achievement has to be taken in context
In the second quarter of 2021, the large law firm market saw dramatic increases in both the key metrics of legal demand and productivity as overhead expenses continued to shrink and worked rate growth slowed from rapid growth seen over the past several quarters.
All of this propelled the Thomson Reuters Peer Monitor Index (PMI) forward by 22 points, the largest quarterly increase in the history of the Index, to a score of 84, which itself was an all-time record. (The PMI, produced by Thomson Reuters, is a composite index of law firm market performance that represents the quarter-over-quarter change in drivers of law firm profitability, including rates, demand, productivity, and expenses. Positive factors driving firm profitability will produce a higher score.)
Of course, these figures, which may appear eye-popping at first, need to be viewed with a heavy dose of historical context. Indeed, given the pandemic and economic crisis last year, the second quarter of 2020, set a relatively low benchmark in many metrics. As a result, Q2 2021 had a relatively low bar to clear in nearly every metric. Yet the actual figures posted, in many cases, outperformed what could be considered a return to prior.
Indeed, as the Q2 report makes clear, there are plenty of positives to take away from this quarter’s results; and one way to highlight this is to compare the Q2 results to a past “normal” Q2, rather than Q2 2020, which was anything but normal.
Thus, when we examine many of our typical metrics in comparison to those same figures in Q2 2019 we perhaps get a better idea of what Q2 numbers really mean. For example, demand in Q2 this year was up 0.6% compared to Q2 2019, which demonstrates how far we’ve come in the recovery of demand for law firm services since the 5.9% YOY drop in Q2 last year. Similarly, productivity is showing that things are not as bad as they once appeared, with that metric falling only 0.5% short of the mark set in Q2 2019.
Rising demand, falling expenses
That said, Q2 demand was still historically strong and driven by the strength of M&A and other corporate work. Several other practice areas, including real estate and employment, also saw demand grow to above pre-pandemic levels. Meanwhile, overhead costs such as office expenses, continued to decline (not surprisingly), even as many firms prepare for a return to the office. Both these trends contributed greatly to the record-breaking PMI number for the quarter.
“The legal market has shown tremendous resiliency in not only withstanding but finding ways to grow amid the tremendous disruptions of the past year,” says Mike Abbott, vice president of Market Insights and Thought Leadership at Thomson Reuters. “Firms and lawyers are leveraging strategic and operational flexibility, as well as innovative technologies, to meet the rapidly changing needs of their clients and position their firms for continued success through conditions that remain both fluid and challenging.”