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As Big Law firms finish out a year that saw healthy revenue and demand growth, many of their in-house counterparts have said they've already begun to cut back on their total law department spending in anticipation of an economic recession.

The reports released in the last week by Citi Private Bank's Global Law Firm Group and Altman Weil highlight what appears to be an enthusiasm gap between these two interdependent corners of the legal industry.

Citi announced this week that revenue grew by an average 5.1% in the first nine months of the year for the 190 law firms the bank surveyed. By contrast, 238 chief legal officers told Altman Weil that only a plurality of them—40%—increased their law department budgets this year.

That's still a lot, but it's a decrease from last year's 53%, said James Wilber, an Altman Weil principal and the survey author. And in this year's survey, 27% of departments said they spent more on outside counsel this year—a drop from last year's 42%.

"Obviously, one year does not a trend make, but to us, it's some indication that there is caution out there," Wilber said.

Looking at the overall law department spend, the Altman Weil survey also found that 38% of departments decreased overall spending in 2019, up from last year, when only 29% made budget cuts.

In the same survey, 76% of surveyed chief legal officers said they believe an economic recession will hit the U.S. within the next two years. Citi, for its part, does not believe a recession will happen in 2020, said Gretta Rusanow, the head of advisory services within Citi Private Bank's Law Firm Group.

Rusanow said 2019 is shaping up to be "a really good year" for law firms, pointing to how demand for firms has increased quarter-over-quarter this year. But not every law firm is hitting those marks, she added.

"It's a market where you see firms as having very different experiences," Rusanow said. "Not everyone is going to report strong growth."

Rusanow noted that the concept of legal departments cutting back on their internal and external spending isn't new—they have been talking about it and doing it for years. But their corporations' legal work still has to get done, as both Rusanow and Polsinelli CEO Chase Simmons pointed out in separate interviews.

"One thing the firms need to keep in mind is that corporate legal departments will likely get smaller in-house and want to have firms available to pick up the slack when they need it," Simmons said. "We have seen that in past recessions, that when a recession hits and businesses are trying to lower their fixed costs, that's one way to do it. That can be good for law firms, if you have the right capacity."

"We're all a little worried a recession is on the horizon at some point," Simmons said, but noted that the firm's clients are currently doing great and this led Polsinelli closing out its fiscal year with more revenue and more lawyers than the year before.

Even if a recession were to occur soon, plenty of law firms say they are prepared.

Law firms have been building up the practices that thrive in a bad economy, including bankruptcy practices and litigation, Rusanow said. The American Lawyer in October found that 2019 has seen more lateral moves among bankruptcy-focused lawyers than in 2017 and 2018 combined. Jon Lindsey, the New York founding partner of Major, Lindsey & Africa, said every law firm the legal recruiter has visited prioritized growing its bankruptcy practice.

Wilber said this was the first time Altman Weil has asked CLOs about the prospect of a U.S. recession. He added that their recession worries match what he reads in the general press: "There is still growth in the economy, but there are some headwinds and some fears about it."

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