PMI Predicts Law Firms Continue Struggling in 2012

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The Peer Monitor Index of the Hildebrandt Institute that monitors law firms’ earnings and finances grew modestly in Q1 of 2012 after two sharp drops at the end of 2011. According to the data, while growth is on the cards, the year will see a greater number of efforts hamstrung by rising expenses and operative costs.

Demand for law firms, including AmLaw firms experienced a 1.5 percent growth over the same period of last year. However direct expenses of firms rose by six percent and overhead expenses grew by 3.6 percent. The rise in expenses is still insufficient to celebrate the 2 percent growth in demand witnessed by the AmLaw 200.

The Peer Monitor keeps track of quarter-over-quarter changes in factors that influence the profitability of law firms, including expenses, productivity, demand, and billing rates.

  

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Peer Monitor head Mark Medice said that the rise in expenses can be partly attributed to the facts that it is not possible for most firms to defer certain payments and expenses like technological upgrades, even though recovery is slow and coffers far from full.

The practice areas that seem to be booming already in the first quarter, compared to last year include Labor& Employment, which witnessed a growth of five percent, and capital-markets related work, which experienced a growth of six percent. Intellectual property practice is also on the rise, but general corporate work dropped by six percent. Both traditional litigation and real estate practices are also suffering.

The highest growth area for the AmLaw 100 firms was in patent related intellectual property work and capital markets. However, the same firms are witnessing close to five percent decrease in general corporate work, bankruptcy, structured finance, and real estate.

The report due in June is expected to provide a clearer picture of the situation. Medice said, “The first half of the year will often set the tone for where things are going to go. Q2 will be really important to indicate what kind of year we’re going to have.”