The law firm market rebounded in the first quarter due to improved growth and surging rates, according to the Q1 2023 Thomson Reuters Law Firm Financial Index (LFFI) powered by Financial Insights. However, the Thomson Reuters report noted that the recovery was uneven and uncertainty remains as to the direction of the market going forward.

Legal Current shares key takeaways from the report.

  1. The most striking finding is how uneven the recovery was. Am Law 100 firms were strengthened primarily on the basis of their high-rate growth, up a record 7.2%. Yet Am Law 100 firms had the weakest demand among the segments, falling 1.5%. Midsize firms, conversely, had the strongest demand, up 1.8%, and was the only segment with positive demand growth for the quarter. At the same time, midsize firms had the strongest headcount growth – at nearly twice the level of Am Law 100, 4.9% vs. 2.8% – resulting in significantly higher direct expenses.
  2. Demand and worked rates were up. Demand was barely positive, up 0.1%, snapping a three-quarter streak of negative demand growth. Meanwhile, worked rates surged by an average of 5.5% – the highest quarterly growth since the Great Financial Crisis of 2008-09. For most of last year, rate growth lagged behind inflation; this marks the first time that rates have grown faster than the U.S. core inflation rate since Q3 2021.
  3. Uncertainty continues to define the legal market. The market remains challenging given the potential threat of a recession. Trends in terms of hiring and expenses may indicate how firm leaders view their future prospects; some Am Law 100 firms have enacted layoffs, while midsize firms saw historic hiring. These decisions may reflect each segment’s belief of how it will perform in the months ahead.

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 Q1 2023 LFFI report for more insights.

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