The first half of 2018 brought welcome news for U.S. law firms, and it's an even happier time for those based in Pennsylvania.

Nationally, law firms enjoyed stronger demand growth they have seen since the Great Recession. Pennsylvania fared even better, according to recent survey data.

Citi Private Bank reported overall revenue growth of 5.5 percent in the first half of the year, which is the strongest showing since 2007. Demand increased by 2 percent industrywide, and lawyer billing rates increased by 4.5 percent. Likewise, Thomson Reuters reported a 1.4 percent increase in demand industrywide in the second quarter of 2018, according to its Peer Monitor Index.

In Pennsylvania, demand grew 3.3 percent and revenue grew 6.4 percent, both well above the industry average, according to John Wilmouth of Citi Private Bank's Law Firm Group. Among the 11 regions Citi surveys, Pennsylvania ranked fourth-highest for both categories. The revenue increase was not driven by rates, however, which grew by only 2.7 percent, below the national average.

Pennsylvania was roughly in line with industry averages for head count, with lawyer head count growth of 2.2 percent, and equity partner tiers shrinking by 0.8 percent. Local firms saw expenses increase by 7 percent, above the industry average of 4.8 percent, which included compensation expense increases of 10 percent, Wilmouth said.

Industrywide, Am Law Second Hundred firms struggled in comparison with their richer peers.

Citi Private Bank found that demand increased by 3.2 percent among Am Law 50 firms, the highest growth rate, with firms 51 to 100 on the Am Law 100 having the second highest demand growth as a group. But Am Law Second Hundred firms saw a decline in demand, while “niche” firms saw demand increase by 1.6 percent.

Thomson Reuters reported a similar disparity, as Am Law 100 firms carried the demand growth with an increase of 3.2 percent, and midsize firms fared well too, with a demand increase of 1.8 percent. Second Hundred firms, however, experienced a demand decline of 0.2 percent.

But locally headquartered firms in the Second Hundred said they are experiencing demand growth.

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Busier and More Stable

Mark Silow, chairman of Fox Rothschild, said his firm has seen a small uptick in demand.

“I can't say it's been as dramatic as what's been reported” for Am Law 100 firms nationally, he said. But “over the last couple months, we've had more stability. Each month has been a little bit better than the same month in prior years.”

Duane Morris chairman Matthew Taylor said his firm's demand growth is “in line” with averages reported for the Am Law 100, of more than 3 percent.

“Our clients are feeling confident in terms of their businesses, and they're feeling good about the economy. That's driving not only deal work, but it's driving a good bit of litigation too,” Taylor said.

Despite Thomson Reuters' bleak findings for Second Hundred demand growth, Buchanan Ingersoll & Rooney CEO Joseph Dougherty said his firm had a better second quarter than the average Second Hundred firm. He said demand was up 3.3 percent from the first quarter to the second, and hours billed were up 4.3 percent. Asked how that compared to last year, he said, anecdotally, “We're definitely busier.”

As for Second Hundred firms that did suffer, Dougherty said, “That may be geographical, or it may be toward the back half of the Second Hundred.”

Saul Ewing Arnstein & Lehr also had a strong first half, managing partner Barry Levin said. He credited that in part to Saul Ewing's merger last year with Midwest and Florida firm Arnstein & Lehr, which has led to increased cross-selling.

Describing the uptick in demand, Levin said litigation is up 12 percent year-over-year, bankruptcy and creditors' rights is up 5 percent and real estate has picked up in the last 90 days. Though, he noted, transactional work has been flat on a combined-firm basis.

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'Apples and Oranges'

Still, firm leaders aren't dubbing this a return to the glory days.

“We're not quite ready to declare victory,” when looking at current numbers in the context of the pre-recession legal industry, Silow said.

“There's been less big litigation in the last few years, and big litigation tends to drive big hours,” he said. “Without significant major litigation it's tough to crack into the 'my-hair-is-on-fire' billable hours of yesteryear.”

Litigation funders may be able to play a role in reversing that trend, Silow said, by creating more opportunities for firms to take on big cases. However, he noted, while litigation funding is a topic of much discussion, and some consideration by clients, it hasn't taken hold of the industry broadly.

Levin acknowledged that the recovery has been drawn out, which can temper enthusiasm about growth. But it has been steady and positive, he said.

Dougherty said litigation has been strong at Buchanan, with the firm's labor and employment and intellectual property sections driving demand along with corporate and tax practices. And, he noted, “The economy is doing well. That helps.”

Taylor said viewing the current legal economy in the context of the pre-recession climate is comparing “apples and oranges.”

“You have to look at really the environment you're in. Litigation on a much shorter benchmark, over the last five years, is stronger than it was five years ago,” Taylor said.

The current state of Pennsylvania firm activity bodes well for the rest of the year too, Wilmouth said. With demand up and collection cycle slightly lengthened in the second quarter, he said, inventory is up 7.2 percent, setting the stage for strong collections through the end of 2018.

Productivity is up too, Wilmouth noted, which is a positive especially considering head count growth in the region. “Not only did the region grow their head count quite a bit, but they were able to put it to work,” he said.

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