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US firm profitability weakened by high expenses in Q1

1 May 2012

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By Manju Manglani, Editor (@ManjuManglani)

Demand for legal services in the US increased in the past quarter, but rising costs limited firm profitability, a Q1 market index has found.

Billable hours increased by 1.5 per cent in the first quarter of 2012 compared with the same period last year. AmLaw 100 firms had the lowest demand growth of 1.3 per cent, compared to a growth rate of 2.4 per cent among the AmLaw 200.

Worked rates were up by 3.2 per cent year-on year, a similar growth rate to that experienced in the past two years.

The hottest practice area was labour and employment, which was up by 5.2 per cent. IP litigation grew by 2.7 per cent, while general litigation rose by 1.7 per cent.

Overall corporate work performed the worst, down 1.5 per cent, while tax and real estate work was flat to slightly down. Bankruptcy work reduced by 1.2 per cent, one of the smallest declines seen in that practice area in several years.

Costs – both direct and overheads – grew by six per cent and 3.6 per cent, respectively, representing the highest growth rate in more than three years.

The jump in direct expenses is attributed to increased associate hires in anticipation of greater demand for work, while rising overheads were in many cases due to technology infrastructure purchases deferred from previous years.

The Hildebrandt Institute’s Peer Monitor Index is based on data from 113 US-based firms, of which 45 are from the AmLaw 100 and 39 are from the AmLaw 200.

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