Chaos is a ladder if you’re plotting to conquer a dragon-themed fantasy world or practicing law at the highest level. Thanks to the latest global trade war, Biglaw is enjoying a boom straight out of their wildest revenue fantasies. But the Q1 2025 Law Firm Financial Index suggests the good times may not last, with the market delivering some of the same warning signs that preceded the last time the bottom fell out of the industry.
The average law firm raised its worked rates by 7.3 percent over Q1 2024, the most aggressive increase since the heady days of 2005. Tom Cruise was jumping on couches about Katie Holmes and subprime mortgage-backed instruments rode high. Clearly nothing could possibly disrupt those highs.
Across the board — from midsize shops to the Am Law 100 — firms pushed clients with higher rates and the clients barely flinched. In fact, for the first time in two years, realization (the difference between what firms wanted to collect and what they actually got) ticked up. Apparently, in a world where mad kings slap arbitrary tariffs on everything from cars to movies, clients have bigger fires to put out than quibbling over hourly rates.
But before the partners start popping champagne, the hangover is already on the horizon: demand grew by just 0.5 percent. Productivity, meanwhile, was down 2.4 percent and direct expenses went up a whopping 7.6 percent. So firms are charging more, working less, spending more to keep talent, and relying on short-term spikes in crisis-driven work to paper over long-term vulnerabilities.
If this all sounds familiar, it should. The last time law firms saw a similar short-term surge fueled by global chaos was 2007.
This may mean that the long-term outlook for law firms is far more concerning. While the trade war is boosting demand and pricing power, it poses a direct threat to law firms’ prospects in the latter half of the year and beyond. Interestingly, the Global Financial Crisis (GFC) resulted in an eerily similar surge in legal demand as the financial markets began collapsing in 2007, leading to that year being one of the more prosperous years for law firms. Indeed, our LFFI scores remained in fairly strong territory until Q4 2007.
Remember how that boomlet turned out? Years of transactional decline, layoffs, and the slow slog of rebuilding. Yet here we are again: a geopolitical crisis stoking key work, a rate hike bonanza, a sudden uptick in realization… cue ominous music.
The LFFI dropped 13 points this quarter, settling at 51, signaling choppier waters ahead. Firms might be wise to begin planning for a downturn like a doomsday prepper when there’s a sale on canned beets. And yet, many firms will likely double down on the same spending patterns that could leave them exposed. That 7.6 percent jump in direct expenses reflects a continued war for talent. Overhead climbed another 6.3 percent because everyone has to head back to their pricey office space. Essentially, firms are paying more to keep people on board at a time when demand is barely budging and productivity is slipping.
Thus, economic recessions tend to benefit law firms only in the short term. While the Conference Board does not yet forecast a recession, its relatively optimistic outlook has been consistently downgraded in recent months. Other global institutions such as the World Trade Organization and major banks like J.P. Morgan have increased their recession probability to 60%, meaning law firms may face a long-lasting decline in transactional demand, which is typically a fundamental portion of their operations.
“Law firms must stay focused on strategic growth and investing in the technological revolution,” says Raghu Ramanathan of Thomson Reuters in the press release accompanying the report. When things turn sour, having efficient AI-assisted workflows might be what keeps cuts from digging too deep into the firm’s bone.
Biglaw’s latest boom does not seem sustainable — at least not without exogenous change. Firms might be cashing in now, but the trade war bites everyone eventually.
Enjoy the party while it lasts.
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter or Bluesky if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.
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