By Emma Cueto

Law360 (June 23, 2020, 9:47 PM EDT ) The legal industry has so far done better than expected amid the economic downturn brought on by the COVID-19 pandemic, due in part to a strong start to the year, but the future remains uncertain, according to a new survey by Wells Fargo's Private Bank Legal Specialty Group.

The study found that demand in May 2020 was down just over 10% compared to May the previous year, and data suggests cash collections have slowed. But the drop in demand for legal services appears to have leveled off, expenses have stayed low, and attorney layoffs have been "modest."

"No doubt the legal industry has been impacted by this crisis," said Joe Mendola, senior director of sales for Wells Fargo Private Bank Legal Specialty Group. "But certainly through the first five months of 2020, the results are not bad."

The survey included responses from 72 firms. It looked at demand, collections, expenses and inventory.

Mendola noted that even though demand for attorney services declined about 6% between April and May, the drop seemed to largely be explained by the fact that there were more billing days this April than in May. Breaking down the numbers per billing day, he said, the two months were about the same.

However, Mendola said that some of the positive numbers for 2020 are propped up by the strong first quarter, before the pandemic reached the U.S.

For instance, demand in the first five months of 2020 was only 1.4% below demand in the same period in 2019; however, Mendola said, this was largely due to high demand early in the year. Since April, he said, demand is down sharply compared to last year.

In addition, firms' cash collections were up 3% through May 2020, but much of that is from pre-COVID-19 work, Mendola said. In fact, firm inventory,or money owed to law firms, was up an average of 7% over the 2019 numbers despite the drop in demand, which points to a probable slowdown in collections, Mendola added.

This is consistent with a recent report by software company Clio, which found that firms saw an increase in new work at the beginning of June but a decrease in collections. The report also found that legal professionals are generally more concerned about clients' ability to pay than they were prior to the pandemic.

"Much of the collections we're seeing in May was driven by that strong first quarter," Mendola said. "Which suggests that the second quarter and third quarter will tell somewhat of a different story."

Overall, he said, he expects that things will get worse, not better, over the rest of the year as the pandemic continues. And firms may be especially hard hit during the summer months, he added, which historically have been slow.

"I think the key to the year for the industry will be how quickly they can bring in cash at the end of the year," he said.

Some firms may also be hit harder than others.

Mendola said that based on the survey data, it seemed to matter less how large a firm is and more what the distribution of practice areas looks like. Firms with strong countercyclical practices like bankruptcy, he said, will probably handle the crisis better than firms that focus heavily on transactional work, which is currently down.

--Editing by Bruce Goldman.

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