The strong demand growth of 1.8 percent in the first quarter of 2016 was a surprise to many, including us at Citi. The demand increase of 0.3 percent for the first half of 2016 was more in line with expectations. In fact, results across most of the key metrics softened from the first quarter to the second, although year-to-date results generally compared favorably to the prior year. Revenue grew 4.1 percent in the first half of 2016, down from 5.8 percent in the first quarter, but stronger than the 3.3 percent growth seen in the first half of 2015. While the 3.1 percent expense growth through the first half of 2016 was comparable to the first half of 2015, the increase in associate salaries which many firms implemented in July will put upward pressure on second-half expenses.
So, what do we see for full-year 2016? For reasons we’ll describe in our conclusion, we’re sticking with the forecast of low-single-digit profit growth we communicated in the Citi Hildebrandt Client Advisory published in December 2015. It must also be noted that the significant amount of dispersion between and among firms evident during the post-Great Recession years continued through the first half of 2016. We expect this dynamic to be evident for the full year.
