State Capital Group - News & Publications

 

SCG Legal Newsletter
September 2018

 

As Economy Expands, Legal Market Continues to Lag

U.S. legal industry employment fell again in August, marking the second straight month of contraction, as the country’s overall economy continued a nearly eight-year streak of monthly job growth, according to Labor Department data released September 7. In its monthly look at the U.S. employment situation across multiple industries, the department’s Bureau of Labor Statistics reported that in August an estimated 1,135,300 people worked in legal services, down 1,500 from the 1,136,800 it reported were working in the industry last month. With the July and August figures, the legal industry has now seen two straight months of job declines. In June, according to now-finalized BLS data, the legal industry employed 1,139,500 people, or 4,200 more jobs than this month’s provisional report for August. Legal employment is also slightly down year-over-year in light of August’s results. Compared with August 2017, the most recent provisional data show that 200 fewer people were employed in the legal services industry in August 2018. The legal industry’s employment situation in August continues to run counter to what has happened with the U.S. economy overall. BLS reported in the same release that that the country had gained 201,000 jobs, while the unemployment rate remained steady at 3.9%.

 

No-Deal Brexit Could Cost U.K. Legal Sector 12,000 Jobs, $3.9B in Revenue

The U.K. legal industry could forfeit as much as £3 billion ($3.87 billion) in revenues and lose 12,000 jobs by 2025 in the event of a “no-deal” Brexit, according to a new study released by the Law Society, an independent professional association that represents and regulates solicitors in England and Wales. The study warns against the potentially “significant negative effects” on the legal industry of a “hard” Brexit, an outcome which is expected to hit revenue growth and economic performance across all industries, resulting in reduced demand for legal services and a decrease in employment in the legal industry. In its analysis of both “soft” and “hard” Brexit outcomes, the Law Society anticipates a loss of nearly $3.9 billion in revenue to the legal industry by 2025 in the event a deal is not reached. The study suggested that if in such a situation the U.K. were to fall back on World Trade Organization rules, growth in the industry could drop to as low as 1.1% per year – or £30.86 billion ($39.84 billion) revenue by 2025 – as opposed to steady growth of 2.1% percent in a “soft” Brexit scenario – or £33.83 billion ($43.67 billion).  Both figures contrast starkly with the 4.6% average annual growth the legal industry saw before the 2008 financial crisis. Though the findings suggest a buoyant market until 2020 – due in large part to an increase in work flowing from post-Brexit regulatory changes – a no-deal scenario is likely to have a serious long-term impact on the legal industry. According to the Law Society, a no-deal Brexit would result in 12,000 job losses to the industry over 10 years. The study does acknowledge, however, this will be due not just to Brexit, but also to the increasing adoption of new technology, which over a 20-year period could see the legal workforce shrink by as much as 20%.

 

Law Firms Post Highest Revenue Gains Since Great Recession

Rising demand and rates pushed law firm revenue up 5.5% in the first half of 2018, the strongest performance since the Great Recession. It was more than a half-point better than during the same period a year ago, according to a report by Citi Private Bank’s law firm group. The report sampled 186 firms with 77 among the largest 100. Fifty-three others comprised the next rung of large firms, or those residing in the next 100, and 56 were niche or boutique firms. Firms were not named, but the information they provided is aggregated to identify industry financial trends. The 40 out of 50 largest firms that reported their results outperformed. The biggest reported a revenue increase of 6.8%. Roughly 3.2% came from rising demand, and 4.8% from higher billing rates. While this group also added more headcount than others, it also showed the greatest improvement in attorney productivity. And collections from past client work were set to be better than other, smaller firms. The results were less favorable among firms in the next group in the top category, those in the 51 to 100 range. Their revenue growth was 3.7%, and other measures such as productivity generally lagged. Law firms in the second 100 category saw revenues up only 1.3%. They were behind on other metrics and were the only segment where growth in expenses exceeded growth in revenues. Smaller, niche firms had slightly stronger revenue growth, at 6.9%, than at those in the top group. Their demand was up 1.6%, and billing rates up 3.6%. Firms that have a dispersed geographic reach saw the strongest revenue performance, reaching 8.1%. Those firms have at least 25% of their lawyers based outside the United States. Firms that had fewer lawyers outside the U.S. did less well, underscoring the strategy of the largest multinational firms which have numerous offices and large numbers of lawyers spread around the globe.

 

 

 

 

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