The demand for legal services has increased by 1.9 percent in the first quarter of the year
New financial data from the Thomson Reuters Institute's Law Firm Financial Index reveals that demand for legal services has increased by 1.9 percent in the first quarter of 2024 compared to the same period last year.
The index, which tracks key financial metrics across 186 large and midsize law firms, shows a continued rise in billing rates, with a 6.6 percent increase in the first quarter of 2024 over the previous year. This growth was predominantly driven by midsize law firms. Additionally, revenue grew by 5.7 percent, and firm profits saw a 5.8 percent increase, aided by firms managing to keep direct expense growth to 5.4 percent.
“There’s lots of positivity," said William Josten, manager for enterprise legal content at the Thomson Reuters Institute.
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The Wells Fargo Legal Specialty Group also recently released a first-quarter report highlighting promising signs for law firms. This report, which tracks financial metrics among more than 100 major firms, indicated a 2 percent increase in demand and a 9.5 percent rise in revenue.
According to the Thomson Reuters index, the growth in demand for law firm services was largely driven by litigation, which increased by 3.8 percent in the first quarter. Bankruptcy demand rose by 3 percent, and labour and employment demand saw a 1 percent increase. However, corporate practice demand grew by only 0.6 percent, and demand for M&A practices fell nearly 4 percent. High interest rates continue to cast uncertainty over the recovery of the M&A sector in 2024, Josten noted.
The Thomson Reuters index includes financial data from 103 firms in the Am Law 100 or 200, the nation’s most profitable law firms according to American Lawyer magazine, and 83 firms outside the Am Law 200.
Despite the positive start to the year, Josten cautioned that it remains to be seen whether law firms can collect on the higher billing rates imposed at the start of 2024. Realization rates, which refer to the proportion of billed work that firms collect, were down in 2023. The impact of 2024’s higher rates on realization would not be clear until the second quarter due to law firm billing cycles.
While hiring at law firms has remained modest, the index found that firms are investing more heavily in technology. Technology spending increased by 6.6 percent above the rate of inflation.
“I think that’s evidence of firms starting to see the technology they like, which has the promise of [artificial intelligence] integration, finally coming to market,” Josten said.
Ultimately, the reports from Thomson Reuters and Wells Fargo Legal Specialty Group suggested a promising outlook for law firms in 2024, with increased demand, revenue, and profitability marking improvements from the previous year.