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Legal Data & Metrics

Amid COVID-19 pandemic, legal demand drops in Q2, impacting PMI

· 5 minute read

· 5 minute read

In Q2, the legal market endured its largest quarterly drop in demand since 2009, leading the Peer Monitor Economic Index (PMI) to drop dramatically as well

The first quarter of 2020 was able to stay strong in the face a COVID-19 pandemic that was still in its infancy in the United States. However, as stay-at-home orders, court closures, and broader business shutdowns roiled the economy during the second quarter, the legal market was unable to remain as steadfast, enduring its largest quarterly drop in legal demand since 2009, in the throes of the Great Recession.

As a result, the Thomson Reuters Peer Monitor Economic Index (PMI) declined by 6 points to 51 in the second quarter of this year.

On average, legal demand decreased by 5.9%, relative to the second quarter of the previous year. Likewise, and as a result of significant growth in lawyer headcount over the preceding 12 months, productivity across all fee earners contracted by 7.2%.

Interestingly, however, the declines did not affect all lawyer titles equally. In fact, partners have begun completing a higher proportion of work by volume, leading to a couple of theories as to why this may be happening. In a depressed market, partners under pressure turned to a “eat-what-you-kill” mindset and focus on staying the course to achieve their own billable hour goals. Another theory is that law firm clients, themselves under tremendous and often complex pressures, have an increased need for advisory services that cannot be completed by less experienced lawyers.

Whatever the reason, this shift resulted in worked rate growth coming in at an all-time high in Q2. The average worked rate charged across the market was 5.2% higher than at the same point last year, a full percentage point higher than growth levels recorded during the first quarter.

You can download a full copy of the Q2 2020 PMI report here.

In an effort to maintain cash, law firm leaders have rapidly cut expenditures during the demand downturn. While furloughs and layoffs have not yet become pervasive among lawyer ranks, they are more widespread among support staff. Many overhead expenses — like office expenses declining 5.6% — have seen significant decreases in spend as lawyers are slow to return to the workplace. Similarly, the marketing & business development category saw the largest decreases by an average of nearly 20% on a rolling 12-month basis. And direct expense growth has decreased to 2.3%, while overhead expenses are essentially flat when compared with last year.

“These are unprecedented times for the legal industry,” said Mike Abbott, vice president in Market Insights and Thought Leadership at Thomson Reuters. “While many firms are successfully adjusting their business models to work-from-home, they are still subject to the volatility and uncertainty surrounding their clients as well as the overall economy.”

Law firms also are making rapid adjustments to better suit the current conditions, such as investing in productivity-enhancing technologies — like collaborative and remote work solutions — while reducing expenses in other areas such as overhead, Abbott said.

“More uncertainty lies ahead in coming months,” he added. “But firms are clearly making efforts to improve efficiency and flexibility to deal with what’s to come.”


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