The recently released Peer Monitor Index for Q1 2017 showed a few encouraging signs for the U.S. legal market to start the year.
As we’ve already discussed, rates continue to show strong growth performance, although that growth, thus far, has been tempered by underwhelming performance in terms of realization against those higher rates.
But that’s not the only bright spot worth discussing.
Another positive note for U.S. law firms in Q1 was the slight recovery in overall average demand, as measured by total billable hours worked by the average firm. The 0.3% year-over-year (YOY) increase seen in Q1 2017 may be a relatively small sign of progress, but after three straight quarters of contracting demand, it was a welcome sign nonetheless.
Many people point to factors such as the instability in the overall marketplace created by Brexit and the U.S. presidential elections as reasons for the slowdown in the demand for law firm services: clients became much more cautious in the face of so much uncertainty. But uncertainty can also be a reason why a client would turn to a lawyer for advice around how to best handle potential outcomes, and that does not seem to have happened through much of 2016.
It must also be noted that not everyone would have felt the impacts of demand growth equally. While average demand for the full Peer Monitor sample settled in at 0.3%, law firms would have found themselves on one side or the other of this average, based on a variety of possible circumstances.
First, demand growth was fairly unevenly distributed based on law firm segmentation. Am Law 100 was the clear market leader, with average demand growing 2.1%. In fact, Am Law 100 was the only segment to see positive demand growth for the quarter. In contrast, Am Law Second-100 firms saw an average demand contraction of 0.4%. And reversing a trend seen for most of 2016 where the Midsize segment was the frontrunner for demand growth, the average Midsize law firm saw demand contract 0.7% YOY in Q1.
A similar disparity is evident when examining practice areas as well. Transactional and IP practices drove nearly all of the demand growth for the quarter. Corporate work continued its trend of positive quarters, turning in an average of 1.9% growth in practice demand. IP practices made a strong showing as well. Patent prosecution held essentially flat YOY with a 0.1% gain for the quarter, while Patent Litigation posted the best growth performance for the quarter at 3.9%.
Litigation saw another contraction in Q1, averaging a 1.1% decline for the average firm in the quarter. But even with that average, firms in the Am Law 51-100 saw their average litigation demand grow by 3.0%.
The trend of demand growth being driven primarily by shifting market share rather than true growth in the market appears to be holding so far in 2017. But for an individual firm, there is work to be won, if the firm can properly position itself to capitalize on the opportunities available.