Law firm demand in the first quarter of 2025 increased by 1.7%, falling well short of the 3.2% growth firms had projected, according to Wells Fargo’s Legal Specialty Group. The muted increase comes as Am Law 200 firms continued to expand aggressively, with lawyer headcount rising 3.4% and billable hours per lawyer declining by 1.6%.

“Firms came into the year projecting pretty strong demand growth,” said Les Starck, senior consultant with Wells Fargo’s Legal Specialty Group. “What that’s saying is that demand was up only 1.7% while lawyer FTE was up 3.4%.” That mismatch signals overcapacity risk as attorney hiring has outpaced actual legal work demand. Professional staff growth was even higher, at 4.3%.

Revenues, however, rose 11.3%, driven almost entirely by a 9.5% increase in average billing rates. “Rates are really driving this story,” said Owen Burman, another consultant with the group. Law firm inventory—unbilled work and receivables—climbed 11.5% for Am Law 200 firms and 11.7% for Am Law 100 firms, raising flags around collection cycles and cash flow sustainability.

Concerns are particularly focused on transactional work. “Mid-market transactional demand started to slow down well before the tariff discussions began,” said Burman. With President Donald Trump’s protectionist economic policy expected to impact the second half of 2025, firms are bracing for a dip in deal activity and widening credit spreads.

The data reinforces broader cautionary trends. As Law.com reported, law firms are navigating rising expenses and long-term pressures on the billable hour model, including the impact of generative AI and in-house legal department cost-cutting. The sustainability of current growth strategies remains an open question heading into the back half of the year.