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Market Updates | 30th April 2021

The pandemic is accelerating the pace of change right across the professional services sector, amplifying pre-crisis trends as well as triggering entirely new ones. We’ll be keeping tabs on these over the coming months: We’ll be reporting back on what clients are telling us and how we see different segments of the professional services sector perform, as well as highlighting emerging opportunities and challenges. As always, we’ll be taking a fact-based approach. Our market sizing data comes from our unique model of the professional services sector, with more than $1tn of revenues broken down by sector, geography, and capability. Our forecasts are constantly updated to reflect the latest market data we have available from firms and their clients. Client data comes from our rolling programme of quantitative research and interviews.

A fast recovery in the US professional services market

Prior to the pandemic, the US professional services market was worth US$470bn in 2019, equivalent to almost 40% of the entire global market—more if we focus on specific segments such as management consulting. This means that the US isn’t simply the crucible of new ideas (although it often is) or the bellwether of economic change (which it usually is), but that growth in this market gives clients, professional service firms, and investors confidence.

After the 2008-09 financial crisis, demand for professional services in the US recovered far more quickly than in any other region, resulting in two to three years of growth significantly ahead of other important markets, notably Europe. Four factors accounted for this. The first was the underlying strength of the US economy, which was significantly more robust than that of some eurozone countries. Second, US organisations see the use of external help as a given, while executives elsewhere are often more ambivalent and will take the time to scrutinise decisions to hire outsiders when in-house resources are available. Another factor is the size of the compliance market in the US—any type of mandated change such as regulation—which generates a disproportionate amount of work because of the number of large, complex companies headquartered there. Finally, there’s the speed with which US clients are typically prepared to adopt new technology.

Will those factors apply now, in the aftermath of a very different type of crisis? Our view is that they will, but the size of the professional services sector, 10 years on, means that some growth rates look less impressive. Fortunately for the sector, there are other new drivers of growth.

We estimate that the entire US professional services market contracted by just over 15% in 2020, somewhat worse than the global picture of a 13% reduction. However, the US economy is already recovering quickly. The Federal Reserve recently announced that it expects US gross domestic product to grow by 6.5% in 2021, compared with its 4.2% forecast. It also increased its 2022 real GDP forecast to 3.3% from the 3.2% previously expected. Rising infection rates and the prospect of renewed restrictions in some parts of the country are unlikely to significantly dent this as consumers and most organisations have adapted, even while they hanker after a return to the old normal. As such, we’re forecasting that the US market will grow by 12% this year, compared to a global average of 11%.

US clients appear to be more bullish about their use of external support than their equivalents in other parts of the world. Research we carried out at the end of last year with around 3,000 senior executives, all of whom were significant buyers of professional services, indicated that 80% of organisations in the US expected to spend more on consulting services in 2021, compared to 72% elsewhere—while we don’t have this data for other segments of the professional services sector, we expect it to be similar.

Demand for compliance-related support dipped in Q2 last year as clients sought to cut external support costs, but it started to recover in Q3 as the same organisations started to recognise that they had neither the skills nor resources to do this non-discretionary work. In the US, that’s expected to result in 13% growth in 2021. However, environmental regulation and other government-mandated initiatives are likely to drive this up in 2022 and beyond..

At 6%, the forecast for the technology consulting market looks sluggish by comparison, but size is a factor here. We estimate that this market was worth $36bn in the US and grew by 5.3% during the pandemic. The $1.8bn we expect to be added to this market in 2021 is larger than other lines of business in their entirety. Moreover, technology-related markets are expected to grow faster, though from a smaller base. Key among these is cybersecurity, where 12.4% growth in 2020—as organisations sought to manage the risks of remote working—will be followed by 17% growth this year.

However, the maturity of the US regulatory compliance and technology consulting markets means that the highest growth rates—if not the largest dollar increases—are likely to be found in other lines of business. The deals market is expected to grow by 24.1%, fuelled by corporates and private equity firms looking for attractive, post-crisis valuations. The research sector—covering both market and economic research—is predicted to have an exceptionally good year, allowing it to recover at least some of the ground lost in 2020 as organisations look for new, robust data sources on which to take strategic decisions. That will boost the strategy consulting market, which we expect to grow by around 20% this year, reflecting the extent to which client organisations are responding to the prospect of recovery by rethinking their business models. Workforce planning—the reconfiguration of organisational structure and offices—will boost demand for a combination of support around real estate and HR change.

All this points to an exceptionally busy US market this year, but professional service firms and investors looking for high rates of return may need to look beyond their traditional markets.

Line of business Forecast growth in the US in 2021
Deals 24%
Research 24%
Real estate 22%
Strategy 20%
Forensic 18%
Marketing & creative 18%
Recruitment 17%
Data & analytics 17%
Cybersecurity 17%
HR & change 14%

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