Our last post reported on Citibank’s first quarter financial analysis and noted that in spite of “alarmingly low” growth in demand currently, managing partners of mostly AmLaw 100 firms were exhibiting an unusual display of optimism: they expect overall demand for legal services to increase this year. A more nuanced snapshot of managing partner expectations was released Wednesday with Citibank’s Law Watch Managing Partner Confidence Index, which asked 65 managing partners for ratings with respect to 10 areas of this year’s first and second quarters using a 200 point index.
Although confidence in the economy at large did increase from 119 to 125, compared to last year’s 4th quarter report, which saw an even bigger 18-point jump from the prior report, the MPs’ assessment of the prospects for demand for legal services for this year actually dropped 14 points to 135. Not a low number, but certainly showing lower expectations in this one area compared to last year, primarily in the degree of growth, with those predicting less than 3% prevailing. Concomitantly, “confidence that profits would increase in the year ahead dropped five points to 95, while the outlook for revenue growth fell by 11 points to 102.”
Nonetheless, overall confidence levels were only slightly below last year’s–113 compared to 115. The economy will improve but it won’t necessarily translate into higher demand for legal services or into profitability.
A look at last year’s 4th quarter report gives us a little perspective on how good these leaders are in the forecasting department. Overall confidence registered in the 4th quarter averaged 115, a 13-point increase from the previous quarter, with confidence as to future demand for legal services increasing 12 points to a fairly high 149. A confidence level that proved to be not well-founded, as it turns out.
Maybe there is a little too much buoyant froth at the managing partner level generally, or maybe we are just slow in digesting what’s happening at the moment. Optimism is not usually a hallmark of lawyerly thinking, but then awareness isn’t either.
Results for 2012 were largely unremarkable. As the top NLJ 20 have reported, 5 firms had 5% or more higher revenue than they did in 2011, 9 had slightly higher revenue, and five reported drops or no change in revenue. So at the end of last year we were primed for higher growth in 2013.
So far, that’s not at all what we’re seeing, and the positive expectations for the rest of the year are tempering accordingly. Regardless of what actually happens in the legal marketplace this year, it will be interesting to see whether we have a realistic handle on our future.