February 2, 2021
Thomson Reuters Peer Monitor Index Hits Near-Record High as Large Law Firms Show Resiliency
Cost reductions, higher rates and rebound in demand produce strong firm profitability
MINNEAPOLIS-ST. PAUL, February 2, 2021 – Law firms implemented multiple strategies to address the challenges due to the impact of COVID-19 leading to a strong improvement in law firm performance. As a result, the Thomson Reuters Peer Monitor Economic Index (PMI) jumped 11 points in the fourth quarter to 69 – its highest mark since 2006, and its second-highest mark ever.
Demand for law firm services remains down but was only 0.3% lower than the fourth quarter a year earlier. Demand fell sharply in the second quarter of 2020 as the pandemic took hold but has gradually recovered. Litigation remains down, but there are positive signs among other practices, including a strong pickup in corporate work in the fourth quarter. “Law firms demonstrated their resilience in 2020, taking swift, decisive measures to adjust to the many difficulties brought on by the COVID-19 pandemic,” said Mike Abbott, vice president, Market Insights and Thought Leadership, Thomson Reuters. “Proactive rate strategies, aggressive cost cutting, successful remote-working models and increased investment in productivity-enhancing technologies all helped produce positive results in the face of unprecedented challenges.”
The fourth quarter reflects many of the extremes that firms have experienced recently. Rates, revenues and productivity were all at some of the highest levels seen in the fourth quarter over the past several years. Expenses fell as firms slashed office expenses and business development. Lawyer headcount contracted as firms put the brakes on lawyer hiring, helping balance supply with demand.
As a result, firm profitability for 2020, as measured by profits per equity partner, rose by an average of 11.5% in the fourth quarter. The gain was particularly pronounced among Am Law 100 firms, where profitability was up 15%.
A copy of the Q4 2020 PMI report can be downloaded at https://legal.thomsonreuters.com/en/insights/reports/2020-q4-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.
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 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.