Law Firms Have Best Quarter In 8 Years

Go ahead and celebrate... cautiously.

Money-Stacked-HighDespite managing partners losing faith in the economy and resigned to another lackluster year, the first quarter of 2016 appears to have been gangbusters for firms. According to the Citi Private Bank Law Firm Group Survey, revenue grew 5.8 percent, making this the best quarter for the legal industry since 2008.

Is this an outlier or a sign that the good times have returned? Well, there’s probably not enough information yet:

The strong increase in revenue was at a level the industry has not seen since the first quarter of 2008. This was driven by growth in demand of 1.8 percent, rate growth of 3.2 percent and a collection cycle that was shortened by 1.5 percent. This compares very favorably to the slow start of 2015, which saw revenue grow just 2.3 percent, driven by demand growth of 0.1 percent and rate growth of 2.8 percent, but slowed by a collection cycle that lengthened by 1.6 percent.

Expenses in the first quarter of 2016 increased 3.2 percent, almost evenly split between overhead and lawyer compensation and well below the pace of revenue growth. That is a far cry from the 3.9 percent expense growth in the first quarter of 2015, which outpaced revenue growth.

Revenue is up, expense growth has flattened a bit, and it’s time for some cautious optimism:

Legal consultant Peter Zeughauser also sees reasons to be optimistic in the numbers. He said via email that it’s a good sign that growth appears to be broad-based across geography, practice area and industry sectors. He added that less work appears to be migrating these days from the top firms into cheaper competitors, meaning clients are still willing to pay top dollar for some work. (BTI Consulting backs this up, finding in a recent survey that rates of $2,000 an hour are no longer total aberrations.)

“There will always be those who say the re-set button was pushed, the golden era will never return, and the sky is falling,” Mr. Zeughauser said. “But, that just isn’t so for well-run firms.”

Well, that may not be cautious enough. Not to knock an 18-fold improvement in demand, but 1.8 percent isn’t exactly great. Especially when you take into account the level of volatility in the market. With wild swings still higher than prerecession levels, to quote The Wolf, “Well, let’s not start sucking each other’s dicks quite yet.”

Citi Report: Law Firm Revenues Surged in First Quarter [Law.com]
Citi: Law Firm Revenue Rising at Pre-Recession Levels [WSJ Law Blog]

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Earlier: How Much Would You Pay For The Very Best Lawyer?
Managing Partners Losing Faith In The Economy
2015 Was A Weak Year For The Legal Industry… And You Should Expect More Of The Same In 2016


Joe Patrice is an editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news.

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