November 9, 2020
Thomson Reuters Peer Monitor Index Rises Amidst Crosscurrents in Third Quarter
Drop in demand moderates as average rates rise and firms reduce costs
MINNEAPOLIS-ST. PAUL, November 9, 2020 – The large law firm market recovered some ground in the third quarter amidst crosscurrents of low demand but high rates and reduced expenses. The Thomson Reuters Peer Monitor Economic Index (PMI) rose seven points to 58.
Demand for law firm services fell 2.4%, a much smaller decline than the 5.9% drop seen in the second quarter. Although total hours billed remained down, firm profitability is being supported by a combination of higher rates and cost cutting, including a slight reduction in headcount. According to the report, the lawyers who remain are still seeing reduced workloads, but ones that are now “more comparable to ‘normal’ times.”
Bankruptcy, regulatory, and trusts and estates work grew during the quarter, while corporate work was nearly flat compared with the same time period last year. Litigation work remains down despite the reopening of some courthouses.
Higher rates have helped cushion some of the impact from the overall weak demand. Average worked rates rose 5.0% during the quarter – a near-record pace. Shifts in workflows among timekeeper levels are accounting for much of the increase, as a higher proportion of worked hours can be attributed to partners than in past quarters.
At the same time, firms are cutting expenses. After growing lawyer headcount 2.3% through the first six months of the year, large law firms have dramatically reduced hiring and headcount contracted, albeit by a slight 0.1%, in the third quarter.
“Law firms have acted swiftly to deal with the challenging business environment brought on by the COVID-19 pandemic,” said Mike Abbott, vice president, Market Insights and Thought Leadership, Thomson Reuters. “In addition to moving their workforces to work from home, firms are adjusting their business models to adapt to shifts in practice demand, benefitting from strong average worked rates, and reducing costs to boost profitability. Firms are actively working to chart a path forward through the current situation and positioning themselves to resume a positive trajectory when conditions improve. However, in the near term, a great deal of uncertainty still remains.”
A copy of the Q3 2020 PMI report can be downloaded at https://legal.thomsonreuters.com/en/insights/reports/2020-q3-peer-monitor-index-pmi
The PMI, produced by Thomson Reuters, 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.
For more information on Peer Monitor, visit http://legalsolutions.thomsonreuters.com/law-products/solutions/peer-monitor.
 The PMI is a composite index score, representing the quarter-over-quarter change in drivers of law firm profitability, including rates, demand, productivity and expenses. Positive factors driving firm profitability will produce a higher score.
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