October 26, 2015

Peer Monitor Economic Index Drops in Third Quarter

Positive demand, but weakening trends

EAGAN, Minn. – The Peer Monitor Economic Index (PMI), which measures the relative health of the legal marketplace, after holding steady for two consecutive quarters, fell two points to 52 in the third quarter. Somewhat higher demand was offset by slightly weakening trends nearly across the board in demand, rates, expenses and productivity.

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[1] for large law firm services rose 0.2 percent during the third quarter – while it was the seventh consecutive quarterly gain, it was the smallest gain seen this year.

Worked rates[2] fell to 2.6 percent -- the lowest rate growth seen in the history of PMI, and evidence of continuing pricing pressure from clients. 

Productivity, meanwhile, fell for the eighth consecutive quarter, as firms continue to grow headcount faster than demand warrants.

Transactional practices remained strong. Corporate work rose 2.7 percent. Real estate was up 3.7 percent, while tax work had its first positive quarter of the year, rising 1.2 percent. Litigation, meanwhile, fell for the thirteenth consecutive quarter, dropping 1 percent. 

Direct expenses jumped 3.3 percent, a sharp rise from previous quarters, while overhead expense growth crept up from 2.4 percent in Q3 to 2.5 percent.

“The law firm market remains challenged in the current low-growth environment,” said Mike Abbott, vice president, Client Management and Global Thought Leadership, Thomson Reuters. “In addition, pricing pressures and rising expenses limit the levers that can be pulled to improve profitability. Still, some firms are managing to achieve moderate growth by focusing on specific practices, geographies or clientele that provide opportunities for more business. The key is identifying the opportunities that are available and right for a particular firm.”

A copy of report can be downloaded here: https://peermonitor.thomsonreuters.com/wp-content/uploads/2015/10/PMI_Q3_2015_FINAL.pdf

Thomson Reuters
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[1] Demand is defined as the growth in billable hours.
[2] Worked rates are the negotiated rates as determined by the matter value. Worked rates are often referred to as agreed rates.