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August 9, 2021

Law Firm Profitability Soars, Leading to Record High for Thomson Reuters Peer Monitor Index

Demand for law firm services rises above pre-pandemic levels, overhead expenses continue falling 

MINNEAPOLIS-ST. PAUL, August 9, 2021 – The large law firm market saw a substantial recovery in the second quarter from the economic impact of the last year. Demand for law firm services for the quarter was higher than pre-pandemic levels. In addition, rates remained high, and many overhead expenses continued to shrink. As a result, the Thomson Reuters Peer Monitor Economic Index (PMI)[1], a composite index of law firm market performance, soared to a record high of 84, shattering the previous all-time high of 70. The PMI jumped 22 points, the biggest quarterly increase in the history of Peer Monitor.

“The law firm market has largely regained its footing after persevering through unprecedented challenges,” said Paul Fischer, president, Legal Professionals, Thomson Reuters. “Demand, measured in billable hours, rose a remarkable 7.3% in the second quarter, which more than made up for the steep decline seen in the same time period a year ago. Demand for legal services is now higher than it was two years ago, prior to the pandemic. And measures of firm profitability are significantly higher. There is still some uncertainty, but firms are generally performing at a high level in the current conditions and appear well positioned to withstand whatever lies ahead.”

The dramatic rise in second-quarter demand was primarily driven by strength in M&A and other corporate work. Several other practice areas, including real estate and employment, also saw demand grow to above pre-pandemic levels. A partial recovery in litigation also contributed. While rate growth slowed slightly from recent quarters, it was still a solid 3.4% this quarter.

Meanwhile, overhead costs such as office expenses, continued to decline, even as many firms prepare for a return to the office. Technology and knowledge management, including library services, expenses were notable exceptions, rising in the second quarter as firms continued investing in resources to support lawyers’ workflow – both remote and in-office.

“The legal market has shown tremendous resiliency in not only withstanding but finding ways to grow amidst the tremendous disruptions of the past year,” said Mike Abbott, vice president, Market Insights and Thought Leadership, Thomson Reuters. “Firms and lawyers are leveraging strategic and operational flexibility, as well as innovative technologies, to meet the rapidly changing needs of their clients and position their firms for continued success through conditions that remain both fluid and challenging.”

The report notes that many of the current drivers of law firm profitability will continue to shift in coming months as demand and rates adjust to the still-evolving paths of the economic recovery and the pandemic.

A copy of the Q2 2021 PMI report can be downloaded at: https://www.thomsonreuters.com/en-us/posts/legal/pmi-q2-2021-market-rebounds/.

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.

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[1] 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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Jeff McCoy
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jeffrey.mccoy@thomsonreuters.com