Posted Jan 31, 2012 11:29 am CST
An index used to monitor the health of the nation’s major law firms has fallen to the lowest level in more than two years, but it’s unclear whether the lower numbers will translate to more layoffs this year, according to the lawyer who oversees the research.
The Hildebrandt Institute’s Peer Monitor Index fell to 49 in the fourth quarter of 2011, which is below the 65 points that indicate a healthy operating environment, according to a summary (PDF) and a press release.
Demand for legal services was down for the fourth quarter, though it was up 1 percent for the year. Sagging demand and accelerating attorney headcount are hampering profitability, according to the summary. During the fourth quarter, “both headcount and overhead expenses rose to their highest levels of the year,” the summary says, even as collections fell sharply.
Lawyer headcount rose 2.8 percent in the fourth quarter and 1.4 percent for the year, according to the Peer Monitor Index.
“Some of the hiring and spending was a result of firms finally biting the bullet on long-deferred new associates and tech infrastructure investments,” the summary says. “Nonetheless, it will be incumbent upon firms to closely manage attorney headcount, staffing and capital expenditures against whatever demand picture emerges this year.”
Mark Medice, who heads the Peer Monitor, tells the ABA Journal in an email that it’s difficult to predict whether the findings indicate more layoffs are ahead. “Moreover it depends on the overall economy,” he says. “If the U.S. economy rebounds, then the extra capacity will serve firms well for growth. If something else happens (e.g., EU meltdown), then I suppose we all would need to rethink things.”
The index includes 116 U.S.-based firms and is based on rates, demand, productivity and expenses. Most of the firms supplying information are among the nation’s top 200, though some mid-sized firms are also included.