EAGAN, Minn. – The Peer Monitor Economic Index (PMI), which measures the relative health of the legal marketplace, slipped 1 point to 55 in the second quarter. Demand for law firm services was up 0.5 percent compared with the same quarter a year ago. While this marks the second consecutive quarterly gain, growth was not as strong as in the first quarter.  Transactional practices continue to show strength while litigation work fell.

Worked rates were up 3.1 percent. Productivity, however, was down 0.8% – headcount growth has reached a two-year high as firms add timekeeper in anticipation of growth that so far has not materialized to the degree that they had hoped.

PMI is produced by Thomson Reuters, and is a composite index of law firm market performance using real-time data drawn from major law firms in the United States and key international markets. A PMI of 65 or greater indicates strong law firm market performance.

Transactional practices have been showing strength for the past several quarters.  Corporate work was up 3.6 percent in the second quarter and has risen in four of the last five quarters. Although real estate work was up 0.8 percent, it was the fifth consecutive quarterly gain. Tax work was up 4.2 percent for the quarter.

Litigation, however, continues to struggle, falling 4.2% – its eighth consecutive quarterly drop.  Patent litigation work dropped 1.5%.

Despite the small growth in demand, productivity fell.  Firm headcount growth has been accelerating this year, reaching its highest level in two years, up 1.5% in the second quarter.  

Meanwhile, expense growth has flattened over the past several quarters as firms achieve greater levels of stability in managing expenses. Direct expenses were up 2.2 percent. Overhead expenses grew 2.4 percent. 

“2014 continues to show demand slightly ahead of last year’s levels,” said Mark Medice, senior director, Peer Monitor. “However, greater challenges may lie ahead during the traditionally slower summer months and end-of-year volatility.  Firms continue to add capacity in excess of demand growth, and it remains to be seen if demand will eventually catch up with capacity, or if the result will be surplus capacity that creates a drag on profitability.”

For more information about the PMI and to review the latest PMI report, visit http://peermonitor.thomsonreuters.com.

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