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Despite what the Federal Reserve keeps saying, the looming recession is more hypothetical than real. Tech companies are taking a hit as Facebook’s foray into janky VR chatrooms and Tesla’s… every stupid thing that guy does have brought down the high-flying sector like a Chinese spy balloon. But outside of that, the economy is pretty solid actually. GDP is growing at around 3 percent per quarter, unemployment is down, inflation — again, despite the fever dreams of the Fed — remains under control, and even eggs are cheaper again thanks to the Swifties.
So why are law firms laying people off? Well… they aren’t really. At least most of them.
The Thomson Reuters Institute just put out the Q4 2022 Thomson Reuters Law Firm Financial Index, reporting that firms took an unsurprising hit to demand in the fourth quarter. Law firms experience lagged economic impacts. As the economy suffered two consecutive quarters of negative growth in the first half of 2022, law firms continued to enjoy cautiously good times. The reckoning comes due now, but with the economy already springing back, most firms refuse to overreact:
“Law firms are at a bit of a crossroads as they face weaker demand and inflationary pressures,” said Paul Fischer, president, Legal Professionals, Thomson Reuters. “Our Financial Insights data notes that firms are moderating their expense growth and generally maintaining their headcount, so they could be well positioned for improved profitability if demand picks up later this year.”
Firms with a heavy tech sector portfolio or preparing for a merger and resulting redundancies will cut back, but most firms see this as a temporary setback. Transactional work took a hit as the year went on and non-transactional work hasn’t recovered from the pandemic yet, leaving firms with a sense of weightlessness last quarter. But that should work itself out by mid-year.
That’s not to say things will return to the heady days of 2021. The era of clearing almost $350K in profit per lawyer during the post-pandemic deal boom is unlikely to return, but can the profession settle into a nice $300K or so? Sure.
Of course, the Fed could introduce real chaos if it keeps up with its obsessive chase of a wage-price spiral that doesn’t yet exist. If interest rate hikes make significant transactional work untenable, law firms could be mired in a demand slump for an extended period.
But for now, we’ll bask in the optimism.
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.
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