First, the disclaimers. It's incredibly early — by far the earliest prediction we have made on a future cycle. The further out you try to predict things, the less certain they become. We didn't plan to parse the data yet; to be as precise as possible, the data started begging us to dig in. Also, this current cycle is unique. With the additional LSAT administrations, the digital LSAT, and particularly the one-time cancel-after-your-score July administration with about a 50% cancellation rate, there isn't anyone who can confidently predict how this cycle will turn out. If this cycle turns out to be significantly up (we don't think it will), next cycle may feel or be a bit more flat. But as things stand, let's allow ourselves to look toward next year and the indicators we are looking at. There are three, two of which could be very significant.
(1) Application volume is often inversely correlated to economic health.
Signs pointing toward a recession and/or a hiring freeze get stronger by the day. Recessions historically, and logically, mean more people are incentivized to go to graduate schools. When employers aren't hiring, higher education is where many flock to build their credentials until the economy improves.
Another recession has been, of course, inevitable — the economy cycles through up and down periods often in a very natural manner. But the most recent data points to the next down period being being right around the corner.
Business investment has fallen for six months straight and declined by 3% in the third quarter, the largest drop since 2015. The retrenchment by businesses helped turn Wednesday's U.S. workforce productivity report — a key economic metric that compares goods-and-services output to the number of labor hours worked — negative for the first time in four years.
More notably, a slew of traditional recession indicators have shown up: the yield curve has inverted, the manufacturing and housing sectors have weakened, and income inequality has spiked to the highest level on record.
- Nearly two-thirds of top executives and business owners say they expect a recession within the next 18 months.
- U.S. corporate balance sheets are holding more than $2.2 trillion in cash, according to the latest figures from global accounting firm PwC. It's the highest number in decades.
- Data from the Investment Company Institute shows that even though the stock market has risen by nearly 25% this year, investors have been net sellers of stocks, pulling $100 billion out of equity funds.
- They've moved more than $3.5 trillion into money market funds, which are essentially savings accounts; it's the highest level since 2009.
A recession is inevitable — the questions are, when will it hit, and how long will it last? The when is of most interest right now – because the earlier it does come, the more it will impact next cycle. Many economists seem to think we are moments away from it happening,
(2) Return of the Trump Bump
We looked back at election years all to way to 1970, and what we found is that bumps in law school applications tend to happen the year following an election (see below for the most recent). But things may be different this year. Voters aged 18-29 were significantly up in the midterms; more than 3.3 million voters from that group cast their votes early. That’s a 188 percent increase from 2014, according to data from TargetSmart, a political-data-analysis firm. For the presidential election this could increase by an even greater percentage. Both millennials and Gen Z are more likely to vote than prior generations were at their age. The bump after the 2016 election was significant, and our friends at law schools in admissions noted the huge spike in personal statements involving politics and political ideologies. Next year could be loaded with politically active law school applicants, increasing the pool anywhere from fractionally to a very large amount.
(3) Could July cancellations have been a test-run for 2020/2021 applicants?
Despite what a few have claimed (see National Jurist), the 50% July cancellation rate caught us all by surprise. We track and speculate on these things obsessively at Spivey Consulting, and we were estimating about a 20% cancellation rate. So what happened with that extra 30%? We do not know yet, because as we have mentioned this is indeed a unique admissions cycle versus any former cycle with more LSAT administrations, the "freebie" of July, and the growing prominence of non-LSAT applicants. But we should have a good idea by early 2020 if a large segment of the July test-takers are indeed future cycle versus this cycle applicants. That too could factor into next cycle being up.
To summarize, we certainly do not yet know. But the fact we felt compelled to look this early is a sign itself. We are going to keep looking and keep updating. If next cycle sees a strong increase in applications, it could be the most difficult we have seen in years.