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November 07, 2016

Peer Monitor Index Holds Steady in Third Quarter

Highest rate growth in two years, demand drops for second consecutive quarter

Eagan, Minn. – The large law firm market battled crosscurrents to a standstill in the third quarter, as higher rates were offset by slumping demand. When the dust finally settled, the Thomson Reuters Peer Monitor Index (PMI), which measures the relative health of the large law firm market, was unchanged at 48 in the third quarter.

Rates have been rising steadily all year. In the third quarter, worked rates jumped 3.1%, the highest rate growth since Q3 2014.

But offsetting that was a drop in demand for large law firm services, which fell 1.1%. This was a steeper drop than the second quarter, when demand fell 0.9% and broke a string of nine consecutive quarters of growth. 

Meanwhile, expenses have been growing every quarter this year. Direct expenses rose 4.3% in Q3 – the highest rate in more than four years. Indirect expenses were up 4.1% – rising faster than any time since Q4 2008. 

Productivity was down sharply, falling 2.5%. While lawyer headcount growth pulled back slightly, new lawyer hiring is still running ahead of last year’s levels.

Transactional practices were mixed-to-weak. Corporate work rose 0.5%, but real estate fell 1.7% and tax work dropped 2.0%. Litigation was down 1.9% – its weakest performance this year. Patent litigation fell 2.6%. Patent prosecution has been on the few consistent bright spots this year and was up another 1.3% in Q3. Labor and employment was down 1.6% and bankruptcy dropped 1.9%.

A copy of the Q3 2016 PMI report can be downloaded here: https://peermonitor.thomsonreuters.com/wp-content/uploads/2016/11/PMI_Q3_2016_Final.pdf

“While the large law firm market managed to hold its ground in the third quarter, several key indicators are trending in a negative direction,” said Mike Abbott, vice president, Client Management and Global Thought Leadership, Thomson Reuters. “Demand has been gradually declining as the year wears on.  Meanwhile, expenses are climbing at a pace not seen for several years. While stronger rate growth is helping to offset these drags on profitability, firms may be running out of runway for much more rate growth, leaving them to cope with slower demand and higher costs.”

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.

For more information on Peer Monitor, visit https://peermonitor.thomsonreuters.com

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