US law firms have slowed their autumn hiring of new lawyers to curb operating costs despite continued growth in demand for legal services, according to a quarterly bellwether survey. The Q3 2023 Thomson Reuters Law Firm Financial Index (LFFI), powered by Financial Insights, shows firms may be setting themselves up for a year-end push for profit growth.
According to the index, Am Law 200 firms have brought in their smallest autumn associate classes since 2020. Firms are seeking to reduce direct expense growth, which, while slowing, remains stubbornly high, rising 6.4% in the third quarter as measured on a rolling 12-month basis. Meanwhile, overhead expenses were up 7.0%. With demand and rates growing, firms are looking to further trim expenses to support profit growth, Thomson Reuters notes.
Demand for law firm services was up 0.1% in the third quarter – the third consecutive quarter of growth. Counter-cyclical practices, which tend to perform better during periods of economic weakness, continued to be among the strongest. These include bankruptcy, litigation, and labor and employment, which were up 6.0%, 2.0%, and 1.1%, respectively. Regulatory and intellectual property were also up, rising 1.9% and 1.0%, respectively.
'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, president, legal professionals, at Thomson Reuters. 'Firms also need to consider the impact of the rapidly growing use of artificial intelligence tools on their hiring strategies. As the recent Future of Professionals Report discussed, AI may have major effects on how legal work is conducted, desired skill sets for new lawyers, and the creation of new career paths and law firm service offerings.'