Peer Monitor Economic Index Drops in Third Quarter

Law firms coping with low demand and productivity

EAGAN, Minn., Nov. 24, 2008 Like the financial markets, the legal market exhibited significant swings in performance in the third quarter, with the Peer Monitor Economic Index (PMI) from West falling two points from the second quarter. Continued weak demand and low productivity for law firms dragged the PMI down despite a rebound in demand late in the quarter.

PMI is a composite index of law firm market performance using real-time data drawn from major law firms in the U.S. and key international markets. As the economy slows, PMI has been trending lower, dropping in 5 of the last 7 quarters.

Top 100 law firms are experiencing weaker demand than most other firms. While key practice areas, such as corporate work, continue to slow, the economic turmoil is creating increased demand for counter-cyclical practice areas. Bankruptcy fees are up over 17% compared with a year ago. Regulatory work associated with finance and securities is up 30%. The third quarter also saw the first signal of a slowdown in IP work.

Firms are trying to control expenses in order to mitigate the impact of slowing demand. Associate hiring is slowing as firms seek to balance headcount with demand. In addition, firms are reining in their expense growth.

"There appears to be greater uncertainty in forward planning than seen in more recent years," said Mark Medice, national manager of Peer Monitor. "A particular concern is the prospect of a drop in Q4 collections. Many firms are experiencing collection issues and are already taking precautionary actions to mitigate any downside effects on profitability."

Continued economic stress could lead to significant changes to the legal industry, including an accelerated rate of consolidation and underlying structural business model changes, such as increased investment in counter-cyclical practice areas. For some firms, the economic turbulence may lead to opportunities for strategic expansion, new practice areas and targeted geographic office openings.

For more information about the PMI and to review the latest PMI report, visit http://peermonitor.thomson.com.

A podcast discussing the Q3 PMI results can be found here.

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