Pittsburgh. (Photo: ESB Professional/shutterstock)

Law firms headquartered in Pennsylvania may not have had the most jaw-dropping growth in 2018, but they started 2019 with stronger demand, rate increases and overall revenue growth than the industry averages.

Revenue grew 9.3% among Pennsylvania-based firms from the first quarter of 2018 to the first quarter of this year, Citi Private Bank's Law Firm Group found in its first quarter flash survey.

“In Pennsylvania specifically, we actually see a stronger story, particularly from a revenue growth perspective,” Citi Private Bank client adviser David Altuna said. That revenue growth is more than double the national average of 4.5% for the first quarter.

The survey included 13 firms headquartered in Pennsylvania. The local results include firmwide metrics for those participants, even if they have offices outside of Pennsylvania, but do not include metrics for Pennsylvania offices of firms based elsewhere.

Altuna said Pennsylvania's strong revenue growth was driven by 5.1% rate growth, beating the industrywide increase of 4.4%. It also helped that Pennsylvania firms saw the collection cycle shorten slightly, as it collected on work from 2018.

And while demand declined industrywide, by 0.3%, it was just about flat in Pennsylvania, increasing by 0.1%.

Altuna said a slowdown in deal flow, volatility in the market and the government shutdown early in 2019 fed into the demand results.

“The demand decline was a bit surprising,” Altuna said. Despite strong rate increases and inventory, “it's not nearly going to be the strong year 2018 was from an economics perspective.”

Along with strong revenue came greater than average expense growth for Pennsylvania firms.

Expenses grew 8.7% among local firms, as compensation expenses were up 7.5% and operating expenses increased 9.8%. All three of those numbers outpaced the industry average—expenses were up 6.5% among all firms surveyed.

Altuna said increases in operational costs have been driven by technology, as law firms invest in tech personnel and cybersecurity.

Still, Altuna noted, the revenue growth was greater than expense growth at the Pennsylvania firms, while revenue growth lagged expenses nationally. So Pennsylvania-headquartered firms are better off from a profitability standpoint.

Local firms also broke with industry norms in head count, which was down 0.5% at Pennsylvania-based firms, while industrywide head count increased 1.8%. But both among the local group and industrywide, equity partnership numbers were flat.

Productivity also was flat in Pennsylvania, while it declined 1.8% nationally.

Inventory growth remained strong across the industry, at 5.6%, and the Pennsylvania-based population was near that, with inventory up 5.2%.

For the rest of the year, Altuna said Citi still expects 6% revenue growth, and the first-quarter results show the industry is on pace for that. Profits per equity partner are expected to see mid-single digit increases, he said, as “profits are really challenged by the pressure from expenses.”

But rate growth, he said, is still likely to continue.

“That's been pretty much what's driven revenue growth since the recession,” he said.

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