SOMERSET, N.J., August 20, 2009 – Aggressive cost controls and headcount reductions are helping law firms deal with weak demand and rate growth. Despite continuing economic headwinds, firms are aggressively reducing their expenses, helping to maintain profitability. As a result, the Hildebrandt Peer Monitor Economic Index (PMI) rose four points in the second quarter to a reading of 44. A PMI of 65 or greater indicates strong law firm market performance. PMI is a composite index of law firm market performance using real-time data drawn from major law firms in the United States and key international markets.

Demand, as measured by billable hours, was down 7.3 percent in the second quarter compared with a year earlier. However, there are some signs that demand may be beginning to stabilize. Bankruptcy work continued to be strong. Litigation work was down from a year ago, but may be stabilizing. Transactional practice areas, including corporate, mergers and acquisitions, capital markets, and real estate were substantially lower but should show signs of recovery in the second half of the year if the general economy continues to improve.

SOMERSET, N.J., August 20, 2009 – Aggressive cost controls and headcount reductions are helping law firms deal with weak demand and rate growth. Despite continuing economic headwinds, firms are aggressively reducing their expenses, helping to maintain profitability. As a result, the Hildebrandt Peer Monitor Economic Index (PMI) rose four points in the second quarter to a reading of 44. A PMI of 65 or greater indicates strong law firm market performance. PMI is a composite index of law firm market performance using real-time data drawn from major law firms in the United States and key international markets.

Demand, as measured by billable hours, was down 7.3 percent in the second quarter compared with a year earlier. However, there are some signs that demand may be beginning to stabilize. Bankruptcy work continued to be strong. Litigation work was down from a year ago, but may be stabilizing. Transactional practice areas, including corporate, mergers and acquisitions, capital markets, and real estate were substantially lower but should show signs of recovery in the second half of the year if the general economy continues to improve.

Rate growth continued to be weak, up only 3.2 percent from a year earlier. Among practice areas, bankruptcy showed the strongest rate growth, up 6 percent. Litigation rates managed to increase 5 percent. IP litigation rates were basically flat. Antitrust and M&A were among the weakest practice areas, declining 1 percent and reflecting a lack of activity in many corporate sectors.

The success of the legal market in achieving cost containment accelerated in the second quarter. Direct expenses fell for the first time, dropping 1.8 percent compared with a year ago, as a result of headcount reductions and adjustments to compensation structures. Overhead expenses were down half a percent in the second quarter, and have fallen steadily since 2006, when the rate of growth stood at more than 10 percent.

“Law firms are moving aggressively to cut costs across the board,” said Mark Medice, program director of Hildebrandt Peer Monitor. “For the first time, we are seeing actual reductions in both direct and overhead expenses, rather than just a slowing in the rate of expense growth, as was the case previously. Expenses should continue their strong downward trend as the effects of reductions in headcount and overhead continue to work their way to the bottom line, supporting profitability and productivity gains.”

"Demand and pricing volatility will continue to pose challenges for firms in the coming months,” said Lisa Smith, vice president, Hildebrandt. “However, the legal industry’s success in systematically reducing expenses will give firms greater confidence and leeway in exploring new approaches to the law firm business model, such as alternative compensation and pricing models, to position themselves for continued success in a low-growth environment.”

For more information about the PMI and to review the latest PMI report, visit http://peermonitor.thomson.com.