The market for large law firms continued to face demand headwinds in the second quarter of the year, but the largest firms continue to separate themselves from their smaller peers, according to a Thomson Reuters Peer Monitor report.

Demand across all firms slipped 0.1 percent from the same quarter last year. But there was a wide gap between Am Law 100 firms, which saw demand rise 1.1 percent, and Am Law Second Hundred firms, where demand fell 0.6 percent. So far this year, demand at Am Law 100 firms is up 1.6 percent, according to Peer Monitor, but it remains down 0.5 percent for Second Hundred firms.

Am Law 100 firms also had a higher rate growth than their smaller peers. Rates at the largest firms grew 3.4 percent from the second quarter of 2016, compared with 2.8 percent among Second Hundred firms.

The Peer Monitor report also found that Big Law may be reining in investments in technology and other overhead expenses as the impact of last year s associate pay raise hits their books. Those associate pay hikes were the main reason behind a jump in direct expenses of 4.2 percent from the same period a year ago compared with 3.2 percent growth in 2016. That was the second-largest growth in law firm expenses since 2012, according to Peer Monitor.

Meanwhile, overhead expenses, which include technology, office space and marketing, showed slower growth. Costs in that area only rose 2.1 percent, compared to 4 percent growth a year ago.

The Peer Monitor report states that Am Law 100 firms have been able to pull ahead of their peers by outperforming them in an unlikely catalyst for growth: Litigation. Courtroom work has been on a long, secular decline, but Am Law 100 firms have bucked that trend this year by increasing hours in their litigation departments by 0.2 percent during the second quarter, according to Peer Monitor.

Litigation groups at Second Hundred firms saw billable hours fall 2.7 percent during the second quarter of this year from the same period a year ago. For the litigation market as a whole, billable hours fell 2 percent in the second quarter of 2017.

Michael Abbott, vice president of client management and global thought leadership at Thomson Reuters, said the growth by the largest firms reflects a reversal of a trend that arose a few years ago showing that clients had started moving work to smaller firms for more cost-effective legal work.

We are now seeing a greater flow of big ticket work such as litigation and M&A to the ranks of the largest national and global firms, Abbott said.