Law Firm Economics in 2020
Recently, the Federal Reserve Bank of Atlanta estimated that the impact of Covid-19 pandemic will cause U.S. GDP to contract 52.8% during the 2nd quarter of 2020. Law firms have not been immune to the sharp decline in economic activity, which is diminishing the available resources of clients to pay legal fees. Despite the U.S. government’s massive stimulus programs for large and small businesses, layoffs and salary reductions are occurring. Considering the estimate of the Federal Reserve Bank of Atlanta, what will law firm economics look like for the rest of 2020?
While some practice groups, such as bankruptcy and perhaps litigation, may see an increase in activity from this economic disruption, it looks as if most practice areas will continue to see a sharp decline of available work as compared to 2019. The economic disruption from Covid-19 has parallels to what law firms experienced during the great recession that began at the end of 2008. However, recent government jobs data reports suggest the U.S. government economic stimulus may serve to blunt the length of this crisis and permit a more rapid economic recovery generally, and for law firms.
That said, should a second wave of Covid-19 impact the United States in the Fall or earlier, its economic impact could extend into the 3rd quarter of 2020 and beyond. Because a large percentage of law firm monthly operating expenditures are tied to fixed costs such as rent and payroll costs, further economic contraction could accelerate layoffs, and in some cases, result in the merger and dissolution of law firms.
2020 could end up being one of the worst financial years for law firms in over a decade, and firms should take necessary measures to position themselves within practice areas that may preserve their viability.