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Managing Partners Losing Faith In The Economy

For managing partners, the economic outlook can best be described as "cautiously pessimistic."

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small law firm bonus bonuses coins change counting spare changeThe Managing Partner Confidence Index, one of the many quality surveys conducted by the Law Firm Group at Citi Private Bank, measures the outlook of law firm leadership across the Am Law 200 (as well as some niche and UK firms). The results of the most recent survey can best be characterized as “cautiously pessimistic,” with enthusiasm for the economy as a whole dampening, even though the firms remain overall slightly positive about their own prospects. And perhaps most importantly to our law school readers: despite the increasing gloom, the firms remain committed to growing lawyer headcount.

When asked about the economic outlook of the legal profession specifically, more partners see their outlook as the same or slightly better, but the significant number of managing partners expecting a step back brings the overall index to its lowest point since 2012.

Considerably Better 0%
Somewhat Better 21%
The Same 56%
Somewhat Worse 23%
Considerably Worse 0%

Still, managing partners expect profits to grow modestly, reflecting the trend of the last several surveys:

Growth greater than 10% 0%
Growth within 5-10% 42%
Growth below 5% 40%
Unchanged 18%
Decrease 0%

One factor depressing the growth in profitability is expected growth in expenses, with 70 percent of expecting growth between 0 and 10 percent. And the big factor driving up those expenses remains growing lawyer headcount both at the partner and associate level, though expected associate growth — even though down from prior surveys — is once again the biggest positive factor.

EP FTE
Increase in excess of 3% 13%
Increase less than or equal to 3% 32%
Unchanged 44%
Decrease less than or equal to 3% 11%
Decrease in excess of 3% 0%

Associate FTE
Increase in excess of 3% 18%
Increase less than or equal to 3% 48%
Unchanged 24%
Decrease less than or equal to 3% 10%
Decrease in excess of 3% 0%

Non-Equity FTE (ex Associates)
Increase in excess of 3% 8%
Increase less than or equal to 3% 24%
Unchanged 50%
Decrease less than or equal to 3% 18%
Decrease in excess of 3% 0%

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So when you think about it, managing partners are a cautious bunch who still can’t quite believe the economy has recovered — and the markets are certainly doing their part to validate this fear. Nonetheless, firms seem firmly (pun!) committed to the positive expectation bias: they see everyone else facing hard times, but feel confident growing their own headcount.

For the sake of lawyers everywhere, let’s hope they’re making the right bet on themselves.

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