Law firm market 'stumbled' in second quarter; rising headcount is partly to blame
The legal market was “blindsided” in the second quarter by slumping demand for legal services, along with rising expenses and falling productivity, according to a report by Thomson Reuters Peer Monitor.
Demand for legal services, as measured by billable hours, dropped by 0.9 percent in the second quarter of 2016, according to a press release. It was the first decrease after nine consecutive quarters of increases, the longest streak since the recession that began in 2008. The findings are based on data from 151 large and midsize firms.
The drop in demand, combined with increasing headcounts, led to a 2.8 percent drop in productivity, the largest drop in the last three years. “The large law firm market stumbled in the second quarter,” according to the press release. The Am Law Daily (sub. req.) also has a story.
Headcount has been rising since the last quarter of last year, and was up 1.7 percent this quarter, according to the Peer Monitor report (PDF). The last time firms grew by so many people was in the second quarter of 2012. For a turnaround to occur, the report says, expenses need to be brought under control and headcount needs to be “constrained.”
“In short,” the report says, “firms have been consistently growing headcount for a considerable period of time beyond what is justified by demand, and that gap is now growing wider. Firms may need to re-evaluate their staffing levels and hiring plans to avoid further drag on profitability.”