U.S. law firms enjoyed strong profits in the final quarter of 2024, but experts warn that 2025 could bring a slowdown.
According to the latest Law Firm Financial Index from the Thomson Reuters Institute, law firm profits rose by 11.5% compared to the same period last year. This marks a near-record high. The report, released Monday, also highlights a few signs that growth may slow down soon.
Despite the profit increase, law firms faced slower demand for services, a slight drop in lawyer productivity, and higher expenses in the fourth quarter. This was partly due to year-end bonuses and investments in new technology. These factors suggest that 2025 could bring more challenges for the legal industry, with firms returning to more stable financial conditions.
Demand for legal services grew by more than 3% in the fourth quarter, but this was slower than the growth seen in 2023. Practices that thrive during economic downturns, like litigation and bankruptcy, saw significant slowdowns after two years of strong performance. On the other hand, transactional practices—such as mergers and acquisitions—experienced rapid growth, possibly linked to the upcoming presidential election.
The Thomson Reuters Institute noted that this surge in transactional work might not be enough to offset declines in other areas of law. The report warns that as demand for counter-cyclical practices decreases, law firms may struggle to maintain their current profit levels in 2025.
Lawyer productivity dropped by 0.4% in Q4 2024, largely due to slower demand and a small increase in the number of lawyers. Many firms have been hiring more lawyers for litigation and other counter-cyclical areas, while reducing staff in corporate practices. With demand for corporate services now on the rise, firms may face a staffing imbalance.
As a result of slowing demand and reduced productivity, law firms will likely rely more on raising billing rates to maintain profits in 2025. However, recent investments in artificial intelligence technology could help improve efficiency, especially for routine legal tasks.
Global and domestic factors, such as trade tariffs and geopolitical tensions, could further impact law firms’ financial health in the coming months. The report warned that unexpected events, including trade wars or natural disasters, could disrupt the current trend of rising profits.
Read more:
