Been down so long it looks like up to me
In the spirit of looking for good news on the economic front, here is something that seems more solid to me than other indicators I have pointed to before. There is more good stuff on my desk today than there was just a couple months ago. When I talk to other business lawyers (as opposed to litigators) here in Boston, they tell the same story. Incredibly, when I look at the actual stats for our firm’s business department, the hard cold numbers confirm the story. Why should you care? Because law firm activity, at least in the corporate finance area, is a lagging indicator of client activity. So, if anecdotes and statistics are right, the corner has been turned.
One measure of law firm health is how many billable hours get logged into the accounting system each day. By the way, we (and I suspect every other major law firm) track our average hours per day per month by practice group. This way we know how busy corporate, litigation, IP and all our other groups are. Also, different departments respond differently to the economy. To state the obvious, our bankruptcy department benefits from hard times, and our business department benefits when there is good business activity in the form of financings, acquisitions and the like.
Anyway, one reason law firms are a lagging indicator of general economic health is that a lot of stuff has to happen before a billable hour can be recorded. By way of example, a client contemplating an acquisition is likely to have a bunch of internal meetings to identify a target, then it is likely to hire a banker and contact the target and have a bunch of discussions, before gearing up the full legal team. All this preliminary stuff takes weeks or even months. As a result, the client has already decided on activity and done a lot of stuff, before there are enough new billable hours per day to move our statistical needle.
Billable hours per day in our business department have been trending up smartly for a few months now. I would say it is enough months to support the conclusion that this trend is more than just a random variance that happens from time to time because some particular client is active despite the general trend of the economy. This statistical evidence is supported by anecdotal evidence from both my partners and my competitors.
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