The large law firm market pulled back slightly in the fourth quarter, but for the year as a whole, 2018 saw across-the-board improvement in demand, rates and productivity. However, much of the gains were concentrated among the very largest firms.  The Thomson Reuters Peer Monitor Economic Index (PMI) dropped seven points to 56 in Q4, but that is still among the highest PMI readings in the last two-and-a-half years.

Demand for large law firm services rose 1.2 percent in the fourth quarter. For the full year, demand was up 1 percent — the strongest annual demand growth since 2011. Much of the gains were concentrated among the very largest firms making up the Am Law 100, where demand rose 2.8 percent in 2018, while gains were more modest for Am Law Second Hundred (101-200) and Midsize firms, which were up 0.4 percent and 0.2 percent, respectively.

Following several years of declining demand, litigation saw its strongest performance in seven years. Demand rose 1.5 percent in the fourth quarter and was up 1.3 percent for the year. Demand for litigation services rose across all of the large law firm market segments — Am Law 100, Am Law Second Hundred and Midsize. Transactional practices were mixed. Corporate work and real estate were up for both the fourth quarter and the entire year, while tax work was down for both the quarter and the year.

Worked rates rose by an average of 3.1 percent in the fourth quarter, and were up 3.2 percent for the full year. Both figures were slight improvements over the similar time periods a year earlier. 

Productivity slipped slightly in the fourth quarter but was up 0.2 percent for the entire year. This marks the first year of productivity growth since 2010. While the market clearly benefited from stronger demand, average lawyer headcount growth slowed, helping bring supply and demand into better balance.

A copy of the Q4 2018 PMI report can be downloaded here.

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.