Peer Monitor Economic Index Falls Again in Third Quarter

PMI shows weakening law firm demand, continued rising costs

Washington, D.C., Nov. 5, 2012 - The Peer Monitor Economic Index (PMI), which measures the relative health of the legal marketplace, fell one point in the third quarter to a reading of 50, its second consecutive quarterly decline. PMI is produced by the Hildebrandt Institute, part of Thomson Reuters.

PMI 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. A PMI of 65 or greater indicates strong law firm market performance.

According to the Q3 report, weakening demand for law firm services combined with rising costs continue to curtail firm profitability.

Demand for law firm services was down 0.8 percent in the third quarter compared with the same time a year earlier. Nearly all practice areas declined during the quarter. Demand for litigation work fell 0.8% during the quarter, and is now flat for the year.  IP litigation saw growth decline for the first time in nearly two years,
dropping 3.6%, sufficient to pull it into negative territory for the year. Labor and employment was the only major practice area to show improvement in the third quarter, rising 2.5 percent. Corporate work fell 1.0%. Transactional practices were also weak, with bankruptcy down 2.6% and real estate down 2.7%.

Worked rate growth rose slightly to 3.4 percent but is still hovering near historic lows.

New York was the strongest major market, up 4 percent, continuing its recent string of positive quarters. Los Angeles, Silicon Valley and Washington, D.C. were all down 2 percent. Chicago declined 3 percent.

Costs - both direct and overhead - continued to rise, although at a slightly slower pace. However, costs are not slowing fast enough to compensate for weakening demand.  Direct expenses rose 3.5% in the third quarter, representing a slight slowing from previous quarters. That's the second consecutive quarterly decline and the slowest growth in direct expenses in more than a year. Overhead expenses were up 3.4%, the slowest rate since Q3 2011.

"For the year, law firm demand is now basically flat," said Mark Medice, program director of Peer Monitor. "In addition, continued pricing pressure from clients and rising costs are eroding firm profitability.  Firms need to increase their efficiency and find new opportunities to grow their business in a flat overall market.  We are seeing an increasing disparity between firms that are able to achieve meaningful gains in demand, rates and profitability compared against firms that are treading water or losing ground in the current environment."

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

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