Demand for large law firm services surged in the third quarter to one of its highest levels since the end of the recession. The Thomson Reuters Peer Monitor Economic Index Report (PMI) says the PMI rose three points to 56 — its second consecutive quarterly gain. However, lagging productivity and rising costs dampened profitability slightly.

Demand for law firm services rose 2.4% in the third quarter. Year-to-date, demand is up 1.0%, slightly better than the 0.9% gain through the first nine months of 2018.

Rate growth continues to be strong as worked rates rose an average of 3.7% and are up 3.8% year-to-date.

Among the practice areas, litigation is on track to record its second consecutive full year of growth.. Transactional practices were mixed in the third quarter. Corporate and real estate work were up, while tax work declined slightly.   IP practices were generally weaker.

Productivity continues to be a concern, as even the robust demand growth in Q3 was not enough to prevent productivity from slipping 0.1%. So far this year, productivity has fallen 1.0% despite generally strong demand growth, as firms have sharply accelerated hiring of additional lawyers.

Meanwhile, expenses continue to climb with both direct expenses and overhead expenses at some the highest levels seen in recent years.

“The large law firm market is seeing a second straight year of strong growth in both demand and rates,” said Mike Abbott, vice president, Enterprise Thought Leadership and Content Strategy, Thomson Reuters. “The growth is fairly widespread across market segments, practice areas and geographies. As macroeconomic uncertainties continue, it’s important that firms remain vigilant about containing costs and hiring levels.”

A copy of the Q3 2019 PMI report can be downloaded at http://ask.legalsolutions.thomsonreuters.info/LEI-Peer-Monitor-Index-Q3-2019-Report

The PMI, produced by Thomson Reuters, 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.