Revenue growth at US firms over the first half of 2008 was the weakest it has been for seven years, with profits per equity partner (PEP) falling by 9.1% over the period, according to research compiled by Citi Private Bank.

The research, gathered from data from 165 US firms including 130 of the Am Law 100 and 200, was revealed on Legal Week sister title The American Lawyer.

It shows average revenue growth of 4.8% for the first half of this year - the lowest average since Citi started tracking quarterly results in 2001. Meanwhile, law firms' expense growth has remained high, driven by the continued increase in lawyer headcount.

Expense growth was at 10.1% in the first half of 2008 - driven by a 5.6% increase in lawyer headcount, with law firms continuing to recruit despite a slowdown in demand.

Productivity, measured by averaged hours billed per lawyer, dropped by 5.5% over the first half with firms seeing a decline in demand for legal services.

Those firms higher up the ranks have taken the biggest hit, according to the research, with those firms that soared between 2002 and 2007 harder hit than their less profitable rivals.

Across 51 of the top 63 firms reporting results, PEP fell by 11.8% during the first half of this year compared with an 11.7% increase in 2007. In contrast, smaller firms only saw a 5.3% drop in PEP over the first half of 2008.

Top-tier firms saw even greater profit margin compression than their peers, with revenue growth of 4.3% and an increase in expenses of 10.9%, compared with a 5.5% increase in revenues and a 9.1% increase in expenses.

The study also showed that increased activity in restructuring, bankruptcy and litigation did not help cushion the drop-off in transactional work.

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