For the third straight quarter of 2023, law firms increased their rates at a clip that set a post-global financial crisis high for year-over-year quarterly growth.
The firms raised their rates 6.3% in the third quarter compared to the same period in 2022, according to a Thomson Reuters Institute report.
The year-over-year growth in so-called “worked rates” was 5.5% in Q1 and 5.9% in Q2 of 2023.
“This is somewhat counter to historical norms; typically, firms tend to set rates in the first quarter and essentially lock in rates for the rest of the year,” a Thomson Reuters press release said. “So far, rate growth has accelerated since the first quarter of this year.”
The rate increases helped law firms maintain profitability in the third quarter. The Thomson Reuters Institute’s Law Firm Financial Index held at its six-quarter high of 50 points.
The demand for legal services increased 0.1% year-over-year, the third consecutive quarter of growth.
The report said demand would have been stronger if not for Q3 2023 having one fewer working day than the same period last year.
Counter-cyclical practice areas continued to lead the way, much as they have throughout the year.
For example, bankruptcy saw a 6% increase in demand and litigation saw a 2% increase in demand in Q3 compared to the same period a year ago.
On the other hand, mergers and acquisitions work saw a 5.2% decrease in demand and corporate work saw a 1.5% decrease.
“While counter-cyclical practice demand has managed to keep many firms chugging along, the continued lack of a transactional practice recovery is holding others back,” the report said.
Direct expense growth across the industry grew more than 6% in the third quarter compared to a year ago.
However, in an effort to trim expenses, law firms have significantly reduced their fall hiring of new associates.
Firms in the Am Law second hundred reduced their fall associate hiring by 24.8% compared to their average for the last two Septembers, and Am Law firms 100 firms reduced fall associate hiring 16.5%.
Midsize firms reduced fall associate hiring by 8.8% compared to their average for the last two Septembers while more aggressively adding non-first year associate titles than the other segments, the report said.
“Restrained hiring to reduce expenses and aggressive rate strategies are positively impacting both the top and bottom lines, helping firms set themselves up for what could be a strong finish to 2023,” said Paul Fischer, Thomson Reuters’ president, Legal Professionals, in a prepared statement.