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U.S. law firms experienced one of their strongest quarters in recent years, as client demand across multiple practice areas surged during the third quarter of 2025, according to a new analysis. The findings indicate that the legal industry is continuing to rebound from prior years of uneven performance, with both large and mid-sized firms reporting healthy growth across transactional and litigation work.
The Law Firm Financial Index (LFFI) — a widely watched measure of the sector’s health — recorded a 3.9% increase in overall demand compared to the same period in 2024. This marks the fourth-largest quarterly increase in the past two decades, a notable rebound after periods of moderate growth earlier in the year. Analysts credit the resurgence to a combination of revived corporate activity, robust litigation demand, and sustained rate growth across most practice areas.
Transactional Work Fuels Recovery
Transactional practices led the upswing in demand, underscoring the continued strength of deal-making and corporate advisory work despite ongoing global economic uncertainty. Mid-sized firms, in particular, were standout performers, reporting a 6.1% rise in transactional demand year-over-year.
Breaking down the figures further, the report showed that mergers and acquisitions (M&A) work rose 6.7%, reflecting a rebound in corporate deal volume after a sluggish 2023. Corporate law assignments climbed 4.4%, real estate work was up 4.2%, and tax matters increased by 3.7%. These gains demonstrate that clients are again prioritizing business expansion, restructuring, and cross-border transactions — areas that had slowed during prior economic tightening cycles.
Litigation and Counter-Cyclical Practices Hold Steady
While transactional matters led the way, litigation demand also rose a significant 4.9% in the third quarter, signaling that court-related work remains a key driver of revenue stability. Labor and employment practices saw a 4% increase, driven by heightened workplace disputes, compliance issues, and regulatory scrutiny across industries.
However, not all areas benefited equally. Bankruptcy work declined slightly, by 0.4%, reflecting a lower volume of insolvency filings amid continued economic resilience. Still, analysts caution that if interest rates or credit conditions shift sharply in the coming quarters, demand for restructuring work could rise again.
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The data further reveal distinctions between firm sizes. Among the Am Law 100 — the largest firms by revenue — demand for counter-cyclical practices such as litigation and bankruptcy rose just 1.6%. By contrast, firms ranked 101–200 saw a 6.3% increase, while mid-sized firms recorded a 3.9% jump. This divergence underscores the agility of smaller firms in capturing market share in competitive or specialized areas, where clients often seek cost-efficient representation.
Rising Billing Rates Boost Profitability
In addition to higher demand, billing rates rose 7.4% year-over-year, further lifting law firm profitability. Rate growth has been a consistent contributor to revenue gains over the past few years, even during periods when overall demand was flat. This trend suggests that firms have maintained strong pricing power, supported by client willingness to pay premium rates for high-quality legal services.
However, the report also notes that overhead expenses climbed 7.5% in the same quarter, driven by technology investments, office upgrades, and increased personnel costs. Many firms continue to navigate hybrid work environments that require substantial digital infrastructure and cybersecurity enhancements. While these investments support long-term efficiency and data protection, they also add pressure to short-term margins.
A Competitive Yet Optimistic Outlook
The strong third-quarter performance provides optimism for the remainder of the year, especially after a turbulent 2023 in which many firms grappled with stagnant demand and rising costs. Analysts observed that this level of growth is among the most vigorous since 2021, when the post-pandemic surge initially drove client spending on legal services.
Still, the outlook for 2026 remains cautious. Economic and geopolitical uncertainties — including inflation pressures, international trade dynamics, and potential regulatory shifts — could temper demand in certain practice areas. The report warns that while law firms are enjoying a favorable cycle, the market could quickly cool if corporate confidence wanes or if litigation slowdowns occur.
Mid-Sized Firms Shine Bright
One of the most notable trends in the report is the continued momentum among mid-sized firms, which have consistently outperformed larger competitors in relative demand growth since 2023. Their success stems from competitive pricing structures, flexible service delivery, and a growing client preference for value-oriented representation.
Many mid-sized firms have also expanded their footprints through lateral hiring and regional diversification, helping them compete for national and cross-border work traditionally dominated by global giants. With transactional practices thriving and cost pressures comparatively lower, these firms remain well positioned for sustainable growth heading into 2026.
Conclusion
The third-quarter findings portray an industry that has regained balance and momentum after several volatile years. Demand growth, particularly in transactional work, coupled with rising billing rates, signals a strong recovery for the legal sector. Yet, with operational costs climbing and external risks looming, firms will need to continue managing resources strategically to sustain profitability.
For now, U.S. law firms can celebrate a robust third quarter that stands among the best in two decades — an encouraging sign that the legal services market remains resilient, adaptive, and well-positioned for future challenges.
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