Two reports this week suggest that a robust economic recovery could be as close as six months away.
Is your law firm ready?
How do you know for sure?
Two good (warning) signs
Two reports published this week strongly suggest that, barring a major disruption or setback, we could begin to see a strong, sustainable economic recovery as soon as by the fourth quarter of 2021.
Of particular interest to law firms in the United States, Goldman Sachs has projected that the unemployment rate will stabilize at approximately 4.1% by the end of the year. Quoting from an article posted on the Bloomberg website:
"Reopening, fiscal stimulus, and pent-up savings should fuel very strong demand growth,” Chief Economist Jan Hatzius and colleagues wrote in a report highlighting an outlook that’s more optimistic than most other forecasts. They predict the unemployment rate, currently at 6.2%, will fall to 4.1% by the end of the year.
On the global scale, the OECD Interim Report of March 2021 suggests a global recovery by the end of the year, with global GDP growth for 2021 now projected at 5.6%. The optimism is qualified, however, by an ongoing concern about the ability to increase COVID-19 vaccinations. To quote from the report:
Prospects have improved over recent months with signs of a rebound in goods trade and industrial production becoming clear by the end of 2020. Global GDP growth is now projected to be 5.6% this year, an upward revision of more than 1 percentage point from the December OECD Economic Outlook. World output is expected to reach pre-pandemic levels by mid-2021 but much will depend on the race between vaccines and emerging variants of the virus.
The global vaccine rollout remains uneven, with restrictions remaining in some countries and sectors. The outlook for growth would improve (upside scenario) if the production and distribution of doses accelerates, is better co-ordinated around the world and gets ahead of virus mutations. This would allow containment measures to be relaxed more rapidly and global output to approach pre-pandemic projections for activity. But consumer spending and business confidence would be hit (downside scenario) if vaccination programmes are not fast enough to cut infection rates or if new variants become more widespread and require changes to current vaccines.
What does this mean for your law firm?
Each law firm is almost unique, and there will be significant differences between "retail" law firms and "commercial" firms. However, we already see some important implications for law firms generally.
As we have advised law firms worldwide during the economic ups and downs of the past 18 years, we have observed the revenue flow into law firms typically lags from roughtly four to six months behind the business cycle. This means that barring any disruptions or setbacks, most law firms could see a the beginning of increased demand for their services beginning late in the third quarter of 2021 with a sustantial surge in demand by the end of the year. This could result in a significant upturn in fee revenue in the fourth quarter of 2021 and continuing to build through the first two quarters of 2022.
However, as in past economic recoveries, we have also observed that relatively few law firms -- especially small and midsize ones -- are ready to ramp up operations not just back to 2019 levels but beyond. The pandemic and its operational implications for client expectations and the competitive forces in the legal services industry will have largely wiped out the usefulness and relevance of "new normal" thinking. Instead, law firm leaders should plan for a "new excellence" that will define which firms survive and which ones fade away in a changed legal services market.