US legal market report: PEP down at firms for first time since 2009

In the latter part of 2022 and continuing into the new year, multiple challenges have emerged to threaten law firm profitability, including falling demand and productivity, rising expenses, changing client preferences, and economic turmoil, the 2023 Report on the State of the Legal Market records.

Indeed, one key metric, profits-per-equity partner (PEP), is down for the first time since 2009, which occurred during the last global financial crisis.

This scenario and lessons in how law firms are attempting to navigate these choppy waters is mapped out in the 2023 Report on the State of the Legal Market, issued by the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute.

The annual report reviews the performance of US law firms and breaks down the factors that most impact financial success and drive the need for a strategic view of firms’ market positions, operations, and future plans.

This year’s report shows that throughout 2022, growing political and economic uncertainty significantly reduced clients’ appetite for transactional work – which had become the white-hot driver of demand throughout 2021 and the early part of 2022.

Possibly the most prominent development in the legal industry in 2022 was the substantial slowing in demand growth that firms experienced throughout the year. On a year-to-date basis through November 2022, overall legal demand contracted by 0.1 per cent, which stood in stark contrast to the 3.7 per cent growth rate recorded for all of 2021.