The legal industry showed a little bit of recovery in 2011 after it suffered through a couple of ailing years as the recession was ending. There is a piece of bad news though from the fourth quarter of 2011. According to the Hildebrandt Institute, which is a division of Thomson Reuters, the legal industry showed scary vital signs in the fourth quarter of 2011. Those scary signs included a sagging demand for the industry, rising expenses as law firms increased their staffing, and weak collections.
“The market fell sharply out of balance between demand and capacity in the fourth quarter, as demand turned negative but expenses continue to climb,” according to the Hildebrandt Institute. The Hildebrandt Institute publishes a report each quarter on the performance of the legal industry in the United States. “With demand softening and rate growth weak, expense growth has effectively wiped out much of the profitability gains seen over the last two years.”
The Hildebrandt Institute collects its numbers from its Peer Monitor Index. The Peer Monitor Index is based on real-time data it collects from roughly 130 large law firms.
“The challenge law firms face for 2012 is we have rising costs and still pretty soft demand,” said Mark Medice, program director of Peer Monitor.
Medice said that even though terrible economic conditions can lead to more work for some law firms, the data does indicate that the health of the industry will not recover until the economy can recover in the United States. Medice also said that pressure from clients on law firms to lower their legal bills also makes bouncing back tougher for law firms.
The first half of 2011 saw the legal industry improving somewhat, as there was continued growth in litigation, specifically in the area of intellectual property. There was also an increase in demand for work in the labor and employment sector of the legal industry. The report from the Hildebrandt Institute said that transactional practices, which hit a high point in the middle of 2011, fell greatly in the fourth quarter of 2011. The details from the report are as follows:
“General corporate work was down 4.7%, capital markets fell 5.0% and M&A dropped 5.1%. For the year, capital markets and general corporate both dropped .5%; M&A was down 1.2%.”
The legal industry sector that saw decline in all four quarters of 2011 was the bankruptcy sector.
A decline in collections helped to undercut an increase in rates in 2011, which grew by three percent, compared to a 2.8 percent growth back in 2010.