News May 05, 2025

News from JDJournal

Law Firms Overcome Slow Start to 2025 Amid Global Economic Turbulence

After a sluggish start to the year, U.S. law firms rebounded in March 2025, propelled by an unexpected surge in demand tied to President Donald Trump’s escalating global trade war, according to the latest Law Firm Financial Index (LFFI) by the Thomson Reuters Institute.

While early-quarter figures reflected declining lawyer productivity and lukewarm demand, a sharp uptick in litigation and transactional work helped many large and midsized firms finish Q1 on firmer financial ground.

Trade War Spurs Legal Work — But Risks Loom

The Trump administration’s new wave of tariffs and trade disputes sparked a flurry of legal activity, particularly in:

  • Cross-border litigation
  • Trade compliance
  • Supply chain contract renegotiations
  • Regulatory advisory services
“Anytime things start to take a bit of a downturn, people want to talk to their lawyers,” said William Josten, Manager for Enterprise Legal Content at the Thomson Reuters Institute.

However, analysts cautioned that this boom may be temporary. The report warned that while economic uncertainty often drives legal demand initially, prolonged instability could dampen client spending and increase risks for firms in the second half of 2025.

Key Findings: First Quarter 2025 Law Firm Financial Trends

The Thomson Reuters Law Firm Financial Index, which tracks financial metrics from 195 large and midsize law firms, revealed the following Q1 highlights:

  • Overall financial index score dropped 13 points from Q4 2024.
  • Lawyer productivity declined 2.4% year-over-year.
  • Direct expenses (mostly lawyer compensation) surged 7.6%.
  • Overhead expenses increased by 6.3%.

Billing Rates Shine Amid Market Pressures

A bright spot for firms was their aggressive billing rate growth, with rates rising 7.3% over Q1 2024 — the steepest increase since at least 2005.

This rate hike, driven by both inflationary pressures and competitive talent markets, helped offset early-quarter revenue lags and soften the blow from productivity declines.

Talent Wars Push Costs Higher

Direct expenses rose sharply due to:

  • Fierce lateral hiring competition
  • 2024 performance bonuses paid out in early 2025
  • Retention efforts in high-demand practice areas
“The legal market is in an odd position where when things maybe don’t look so good for the overall economy, it looks — at least in the short term — very good for the legal market,” Josten noted.

Cautious Optimism for 2025 — But Prepare for Volatility

While first-quarter profits exceeded initial expectations, the report underscored that the legal industry’s financial outlook remains volatile. With recession risks climbing, firms are advised to remain agile and conservative in their spending.

“The lesson of the first quarter is that law firm leaders should be prepared to weather a potential longer-term economic downturn while hoping for a faster recovery,” Josten added.

What’s Next for the Legal Industry?

Key questions facing law firms in 2025 include:

  • Will trade-related legal demand remain strong through Q2 and beyond?
  • How will recession fears impact corporate client spending?
  • Can firms maintain high billing rates without triggering client resistance?
Many firm leaders are now focusing on cost containment, conservative hiring, and diversified practice growth to prepare for potential headwinds.