Law firms have slowed their fall hiring of new lawyers to curb expenses as demand for legal services continues to recover. That’s among the findings of the Q3 2023 Thomson Reuters Law Firm Financial Index (LFFI), powered by Financial Insights. 

Legal Current shares key takeaways from the report, which shows firms may be setting themselves up for a year-end push for profit growth. 

  1. Firms are significantly reducing their annual fall hiring of new associates to rein in expenses. In particular, Am Law 200 firms have brought in their smallest fall associate classes since 2020. Firms are seeking to reduce direct expense growth, which while slowing, remains stubbornly high, rising 6.1% in the third quarter as measured on a rolling 12-month basis. Meanwhile, overhead expenses were up 7.0%. With demand and rates growing, firms are looking to further trim expenses to support profit growth.    
  2. Demand for law firm services is up, driven by counter-cyclical practices. Demand was up 0.1% in the third quarter – the third consecutive quarter of growth; it would have been even higher but the quarter had one fewer working day than the third quarter of 2022. Counter-cyclical practices, which tend to perform better during periods of economic weakness, continued to be among the strongest practices, as they have been for much of 2023. These include bankruptcy, litigation, and labor & employment, which were up 6.0%, 2.0%, and 1.1%, respectively.
  3. Rate growth continues to accelerate. Rates rose 6.3% to a post-Great Financial Crisis high for quarterly growth. This is somewhat counter to historical norms; typically, firms tend to set rates in the first quarter and essentially lock in growth rates for the rest of the year. So far, rate growth has accelerated since the first quarter this year. Firms also saw realization improve in the third quarter when compared to Q2, ending six consecutive quarters of decline and resuming the usual seasonal pattern of improving as the year goes on. However, billing and collection realization were still lower than in previous third quarters in 2021 and 2022.

The LFFI is a composite index of law firm market performance using real-time Financial Insights data drawn from major law firms in the United States and key international markets.

Download the Q3 2023 LFFI report for more insights. 

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