US law firms experienced a decline in client demand, productivity, and profitability at the end of 2022, according to a report by the Thomson Reuters Institute. In the fourth quarter of 2022, demand dropped by 3.9%, while productivity fell by over 7% YoY.
All practice areas witnessed a decline in client demand, with M&A work suffering the most significant drop of nearly 17%. Real estate, bankruptcy, and tax practices also saw double-digit declines.
The report indicates that firms are now dealing with an “unsustainable” situation, with not enough work for the lawyers they hired in 2021.
Despite the challenges, the report suggests that law firms may see positive signs, with a slowdown in direct and overhead expenses, increasing billing rates, and expected growth in transactional work.