Will Coronavirus and the Upcoming Election Lead to a Recession? - Gillman Strategic Group

With the news changing daily about the coronavirus, and some firms making the decision to cancel large meetings and travel, or even to close their offices altogether, it’s interesting to read a recent article in The American Lawyer that analyzed how this health scare and the coming election may impact a projected recession.

According to a Citi Private Bank report last month, the legal market posted growth of over 5% in 2019, which was based on increased demand and increased rates.  The article pointed out that “a prolonged shock to the economy would undoubtedly hurt not just demand, but would also increase clients’ resistance to increases in billing rates.” Unfortunately, since the article was published, there have been increasing numbers of coronavirus cases in the United States, the World Health Organization declared coronavirus to be a pandemic, and the stock market has plunged even further.

The article cited an industry consultant who said “There’s been a feeling on the part of many chairs and managing partners that the legal market is due for a correction at some point.  It’s possible that this may be the beginning of it.” Even going back to before the December start of the coronavirus outbreak in Wuhan, China, “a majority of American economists had predicted the U.S. economy would enter a recession by the end of 2021.”

But given the historic 11-year economic expansion in the U.S., change may have been bound to come at some point even without concerns about the disease.  One firm chair pointed to changes in his firm’s “distressed” practice areas. “We had a lot of bankruptcy activity. We had a lot of loan enforcement activity.”  There is also “talk about a softening energy market.”

With the introduction of fears about the impact of the coronavirus on top of the projections about an upcoming recession, “there’s more questions than answers at this stage.”  One managing partner pointed out that “the disease introduces an added layer of uncertainty to the firm’s existing preparations for a potential recession. ‘The coronavirus exists outside of a natural economic downturn.  We don’t know yet how it will affect our business but we’re watching it very closely.'”

At the same time, the natural uncertainty that exists in the market during a Presidential election year is happening. With any potential change in the presidential administration, will come “new demand for lawyers, as clients scramble to make sense of uncertainty.” Regulators who “pivot their focus” and potential new legislation will both bring new needs. During the current Democratic primary process, comparisons of Bernie Sanders and Joe Biden at firms center on who is perceived to be more “business-friendly.” Regardless of what happens in the coming months in the economy and in health news, there will still be a major election in November.

One managing partner claimed not to be worried about a future downturn because his firm has “capabilities in . . . five industries that are relevant to good times and to times of distress.”  Other firms are getting ready for busier litigation and bankruptcy practices.  The industry consultant “advises that more firms consider the inevitable downturn, regardless of when it transpires, as an opportunity . . . ‘to make deeper cuts they’ve wanted to make for some time, but about which they’ve faced internal opposition during a stronger economy.’”   The article concluded by stating that “the firms that get this right will also be well-positioned to make a run at top talent at firms that have been complacent.”

It remains to be seen whether the coronavirus outbreak will hasten an economic downturn, but it seems like the legal industry is in agreement that there will be a downturn somewhere on the horizon, whether due to the health scare, upcoming election, or normal economic cycle.  It’s certainly an issue for firms to keep a close eye on.

You can read the whole article from American Lawyer here.

If you would like to see how Gillman Strategic Group can support you, set up a meeting with Jennifer here for a short 15 minute chat.