Law firms still struggling with economic challenges, new report shows
Owen Burman, a senior consultant in Wells Fargo’s Legal Specialty Group, told Reuters that “we’ve never seen numbers this low.” Image from Shutterstock.
Law firms in the United States continue to face some financial challenges after drops in demand and productivity in the first six months of 2023, according to a new report from Wells Fargo’s Legal Specialty Group.
The group, a segment of Wells Fargo Private Bank that compiles and analyzes firm data, published the results of its 2023 midyear survey on the health of the legal industry Monday. It included responses from more 130 firms, including 66 Am Law 100 firms.
Reuters has coverage.
According to Wells Fargo, the number of billable hours logged by attorneys decreased 0.4% in the first half of 2023, compared to a 0.2% decrease in the first half of 2022. Despite a decline in hiring in the past year, the number of full-time lawyers increased 3.9% in the first six months of 2023.
As a result, Wells Fargo said, productivity decreased 4.1% to an average of 1,538 billable hours per lawyer. This is well below the peak of 1,688 billable hours per lawyer in the first six months of 2021 and the average of 1,631 billable hours per lawyer in the first six months of 2018 and 2019.
Owen Burman, a senior consultant in Wells Fargo’s Legal Specialty Group, told Reuters that “we’ve never seen numbers this low.”
According to Wells Fargo’s report, “capacity utilization continues to remain firms’ biggest challenge near term.” It added: “While several firms have announced plans to reduce lawyers and defer incoming associate classes, with solid rate growth, most firms seem willing to absorb some underutilization in the near term until the economic clouds clear.”
The report additionally shows that revenues increased 4.4% in the first half of this year, compared to 5.7% in the first half of 2022. Wells Fargo said firms achieved this increase as a result of “some of the highest growth in billing rates we’ve seen.” According to its report, billable rates increased 7.7% overall.
While firms’ net income increased slightly—just 0.4%—profits per equity partner decreased by 1.3% in the first six months of this year. Wells Fargo attributed this decrease to a 1.8% growth in equity partners.
Expenses increased 6.2% in the first six months of 2023, which actually represented a sharp decrease from the 14.5% pace set in the first six months of 2022, Wells Fargo said.
Wells Fargo also noted ongoing weakness in mergers and acquisitions and capital markets activity but strength in litigation, restructuring, regulatory, intellectual property, energy, privacy and labor and employment.