February 18, 2015

Peer Monitor Economic Index Falls in Fourth Quarter

2014 ends with steady demand but falling rate growth and productivity

EAGAN, Minn. – The Peer Monitor Economic Index (PMI), which measures the relative health of the legal marketplace, fell in the fourth quarter, dropping three points to 54. Despite the weak showing in the quarter, 2014 marked a year of rising demand, although tempered by falling productivity and rate growth.

The 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.

Demand  for large law firm services rose 0.1% during the quarter – the fourth consecutive quarterly gain. For all of 2014, demand rose 0.7% – the best annual demand growth since 2011, and a turnaround from the decline seen in 2013.

Worked rates, however, rose only 2.9% in the fourth quarter – the lowest rate growth in more than four years. Rate growth for the full year was 3.1%. Productivity continued to trend downwards as firms added more capacity than demand warranted. Productivity was down 1.2% for the quarter, and fell 0.6% for all of 2014.

The market continued to see-saw between strength in transactional practices and weakness in litigation, as it did for much of the entire year. Corporate work gained 2.4% in the fourth quarter, while real estate work was up 1.1% and tax work was up 0.9%. All three practices rose during every quarter of 2014. Litigation, however, dropped 1.3% in the quarter and was down for the year.

Direct expenses inched higher and were up 3.3% as firms grew headcount. Overhead expenses grew 3.3%.

“Overall, 2014 showed both promising signs and continuing challenges for the law firm market,” said Mike Abbott, vice president, Client Management and Global Thought Leadership, Thomson Reuters. “Demand showed its best increase since 2011. But weakness in rates and productivity helped to undercut some of those gains. Whether the market can achieve more positive momentum in 2015 depends in large part on firms’ willingness to identify and capitalize on strategic opportunities for growth and adapting to changing market dynamics that favor efficient and customer-focused delivery of legal services.”

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

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Scott Augustin 
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Email: scott.augustin@thomsonreuters.com