Trade war boosted law firm demand in early 2025 but challenges lie ahead, report says

By Karen Sloan

May 5 (Reuters) - Law firms had a slow start to 2025, but President Donald Trump’s global trade war fueled surging demand in March that helped prop up their first quarter, a new analysis of firm financials by the Thomson Reuters Institute has found.

Litigation and transactional work experienced “significant spikes” late in the quarter, though that gain was not enough to fully offset slumping lawyer productivity and tepid demand in January and February, according to Thomson Reuters Institute’s Law Firm Financial Index, released on Monday. The Thomson Reuters Institute and Reuters share the same parent company.

The benefits of Trump’s wave of tariffs to law firms may well be short-lived, the report warned. The trade war poses a “direct threat” to firms’ economic prospects in the second half of 2025 as demand for legal services typically surges then falls off during times of economic instability. While it’s not yet clear that the global economy is headed into a recession, several key institutions and banks have increased their projected probability of a recession, the report said.

“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,” said William Josten, manager for enterprise legal content at the Thomson Reuters Institute. “Anytime things start to take a bit of a downturn, people want to talk to their lawyers.”

The index compiles financial quarterly metrics from 195 large and midsized law firms and assigns an overall score based upon key factors such as demand, productivity, billing rates and expenses. That score fell 13 points from the fourth quarter of 2024, due largely to lackluster demand growth, a 2.4% year-over-year decline in lawyer productivity, and rising expenses.

Direct expenses — primarily lawyer pay — increased 7.6% over the first quarter of 2024, while overhead expenses increased 6.3%. Direct expense growth was the result of aggressive competition for talent and the continued payout of 2024 performance bonuses, according to the report.

Billing rate growth emerged as a bright spot for firms in the first quarter, which helped to make up for early lags in demand. Law firms upped billing rates 7.3% over the first quarter of 2024, which the index called “their most aggressive increases since at least 2005.”

Taken together, 2025’s early economic metrics suggest that the year may be more profitable for law firms than expected, the index found, but that their future financial prospects are more uncertain.

“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 said.

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