Law firm profits climbed as 2024 ended, but boom times may not last

By Karen Sloan

Feb 10 (Reuters) -

U.S. law firms enjoyed robust profits in the fourth quarter of 2024, but several key indicators suggest that 2025 could bring a slowdown.

Law firm profits were up 11.5% last quarter compared with a year ago — reaching a near-record high — according to the latest Law Firm Financial Index, released Monday by the Thomson Reuters Institute. The Institute and Reuters share the same parent company.

But the fourth quarter also brought slower growth in law firm demand, a slight drop in lawyer productivity and an increase in both direct and overhead expenses as law firms paid out year-end bonuses and invested heavily in technology, the report said. Taken together, those indicators suggest that law firms may encounter more challenges this year and see a return to more normal and sustainable financial conditions.

Demand for law firm services was up more than 3% in the fourth quarter of 2024, which represents a slower rate of growth compared with the previous year. Countercyclical practices such as litigation and bankruptcy slowed “significantly” after two years of record growth while transactional practices experienced “rapid” growth — a potential result of the presidential election, according to the report.

“In 2025, law firms may find that the transactional boost they’ve been experiencing isn’t enough to make up for lessening demand for counter-cyclical and other practices,” according to the Thomson Reuters Institute, which compiles financial quarterly metrics from 195 large and midsized law firms.

Lawyer productivity dipped 0.4% in the fourth quarter, the result of slower demand and a slight increase in headcount, the report found. It said firms have focused much of their recent hiring on litigation and other counter-cyclical practices while reducing headcount in transactional practices, creating an imbalance now that demand growth has shifted to corporate practices.

Slowing demand and productivity means law firms will be more reliant on billing rate increases to sustain profits this year, the index found. But recent investments in AI technology may also start to pay off in the coming months by improving efficiency on routine legal tasks.

However, changing domestic and global conditions, including tariffs imposed by U.S. President Donald Trump, could alter the law firm financial picture in 2025.

“This trajectory could be upset by any number of possibilities, from escalating trade wars to very real wars, or by disasters of both the natural and man-made variety,” the report said.

Read more:

Law firm profits soared in third quarter of 2024, report finds

Law firm transactional work rebounds after 3-year slump, report says