The Thomson Reuters Institute’s 2026 Report on the State of the US Authorized Market, revealed this week, reads like a seismograph. Printed in cooperation with Georgetown College Legislation Middle’s Middle on Ethics and the Authorized Occupation, the report reveals that whereas demand and income stay elevated, underlying forces are unstable.
State of the US Authorized Market: Seismic Shifts
“Legislation corporations are dealing with a elementary shift within the authorized business’s financial panorama, standing at a important inflection level the place they need to navigate shifting shopper calls for, rising bills and a essential transformation of their working fashions,” mentioned Raghu Ramanathan, president, Authorized Professionals, Thomson Reuters, in a press launch.
Should you run a agency, listed below are the 5 highlights from the State of the US Market report that matter most, with sensible steps to remain regular in 2026.
1. Demand Is Booming—and Transferring
It was yet one more banner 12 months in 2025, with one of many strongest demand surges for the reason that monetary disaster, and hours up throughout the board.
“All through 2025, evolving shopper expectations, regulatory modifications, financial fluctuations, and technological developments drove a surge in demand with legislation corporations averaging 2.5% progress for the 12 months and hitting a excessive of 4.4% in July,” says the report. And these outcomes got here regardless of being measured in opposition to 2024’s record-breaking efficiency.
However that progress didn’t land evenly. “Midsize corporations surged forward with almost 5% demand progress within the latter half of the 12 months whereas the Am Legislation 100 couldn’t crack 2%.”
Smaller and midsize corporations captured extra work as common counsel moved work downstream to handle budgets. In accordance with the report, “GCs wanted to do way more authorized work with the identical amount of cash… shifting routine issues, and more and more even reasonably complicated work, to these legislation corporations charging in lots of instances 40% much less.”
In the meantime, the most important corporations targeted on premium, high-stakes issues and noticed income soar.
What this implies for you:
Small to midmarket corporations profit because the market rewards disciplined pricing and credible functionality. Shoppers will shift work for worth.
Should you’re bigger, don’t assume your model will maintain mid-market issues.
Easy methods to reply:
Determine 2-3 observe areas the place you’ll be able to declare “mid-complexity excellence”— too essential to commoditize, too costly on the prime. Construct case research exhibiting outcomes, not hours.
Formalize consumption standards for premium issues versus work that ought to be routed to lower-cost supply inside your agency or companion community. Clear lanes shield profitability and belief.
2. The Arms Race: Tech and Expertise Spending Is Hovering
Know-how spending grew at traditionally excessive charges, whereas lawyer compensation and help prices rose sharply. The typical legislation agency’s spending on expertise and information administration instruments grew an astonishing 9.7% and 10.5% as corporations raced to leverage GenAI to enhance effectivity, drive worth and compete for enterprise at the next stage.
On the expertise facet, corporations are hiring, not reducing, with many layering AI on prime of the present workforce moderately than changing headcount.
In accordance with the report, direct spending on lawyer compensation jumped 8.2% in comparison with 2024, which itself was a 12 months that noticed progress at double the speed of core inflation progress. This isn’t focused spending on a number of lateral hires —it’s broad-based compensation progress throughout each stage.
“Per-lawyer spending on associates jumped 3.8%, whereas compensation for everybody else rose 4.9%. With direct bills already consuming nearly one-third (32%) of the common agency’s income, this can be a substantial portion of a agency’s total funds.”
What this implies for you:
If tech spend isn’t anchored to shopper use case (with measurable ROI), it’s danger, not technique.
The mathematics works—for now—as a result of demand and charges are carrying it. However expertise prices are sticky. When you raise compensation, you carry it via a downturn.
Easy methods to reply:
Connect each important AI buy to a shopper promise: sooner diligence, standardized playbooks, fewer write-downs.
Monitor two KPIs month-to-month: write-offs on affiliate hours first-draft cycle time. If AI decreases each, you’re on the appropriate path. If not, reallocate or retrain.
Construct a light-weight challenge administration crew to prioritize tech tasks, kill what doesn’t ship, and standardize rollout and measurement.
3. The Billing Mannequin is Out of Whack
Will AI lastly kill the billable hour? In accordance with the report, 90% of {dollars} nonetheless move via commonplace hourly billing. This creates “nearly absurd rigidity that sees corporations deploying expertise that may accomplish in minutes what as soon as took hours, then making an attempt to invoice for it by the hour.”
Company authorized groups more and more anticipate corporations to mirror effectivity in pricing and supply. And, because the report reiterates, if a downturn forces purchasers to squeeze their budgets or sends one other wave of prime authorized expertise from corporations to in-house departments, the ensuing transformation may very well be much more dramatic than the Nice Recession.
In accordance with the report’s evaluation,“ Company authorized departments armed with each Huge Legislation experience and AI capabilities wouldn’t simply negotiate tougher on charges, they may cease needing exterior corporations for whole classes of labor.”
What this implies for you:
Elevating charges is a short-term tactic, not a method. It wants a price narrative. With out that, procurement will flatten you.
Corporations that align pricing with AI-enabled supply can have a defensible benefit as demand normalizes.
Easy methods to reply:
Pilot one various mannequin per quarter: phased fastened charges with clear deliverables, subscriptions for “authorized ops + advisory,” or outcome-based elements for repeat litigation. Maintain pilots small, publish classes, develop what works.
Pair pricing modifications with supply transparency: present workflow, instruments, and checkpoints that cut back danger and rework. When purchasers see course of, they settle for construction.
Don’t bury AI. If a quick is quicker and higher since you used vetted instruments plus senior evaluation, say so—and clarify how that reduces their whole value of danger.
4. Purchaser Sentiment is Cooling Quick
In maybe essentially the most dire warning, the report exhibits that “internet spend anticipation” is sliding towards pandemic-era lows. Authorized want isn’t disappearing, however budgets are tightening. General, regulatory and counter-cyclical practices are holding up whereas transactional optimism is fading in a number of sectors.
In accordance with the report, forecasts level to demand softening in mid-2026, with the potential for contraction.
What this implies:
Count on extra selective panels, harder charge negotiations, and heightened scrutiny on worth per greenback.
Funding will go to issues tied clearly to enterprise outcomes; nice-to-have advisory is a harder promote.
Easy methods to reply:
Transfer from “capabilities” to “influence” advertising. Exchange generic observe descriptions with tales that tie authorized work to measurable outcomes (time-to-close, prevented penalties, income safety).
Construct reusable shopper property corresponding to templates, determination timber, checklists and playbooks. Provide them as a part of engagements.
Phase purchasers by funds stress and sector outlook. For instance, alter scope, staffing, and pricing for a recession-exposed retailer versus a resilient well being system.
5. Historical past Lesson: Beware the Peak-Earlier than-the-Fall Sample
Those that rode out the dot.com bust and the Nice Recession is perhaps feeling slightly deja vu.
“At this time’s authorized market dynamics — characterised by booming demand amid instability, runaway bills, and common optimism — carefully mirror the situations that preceded earlier business downturns,” says the report. The authorized market seems to be repeating its sample of surging simply earlier than a big correction.
After all, at this time’s raise could look completely different — in spite of everything, all the things about 2025 was “unprecedented,” and 2026 is off to a tumultuous begin. However the warning indicators are acquainted: fast charge progress, rising bills, and shopper migration, together with the unsteadying uptick in acquisitions. And when situations change, corporations that assumed altitude equals security will really feel the drop most.
What this implies for you:
The actual danger isn’t a requirement cliff; it’s a profitability squeeze if charges stall whereas your prices keep excessive.
Corporations which have versatile supply fashions and clear worth communication are most certainly to maintain purchasers, even in a contraction.
Easy methods to reply:
Shield margins now. Map every main observe’s cost-to-serve. The place are you overlawyering? The place does companion evaluation add little? Tighten staffing earlier than purchasers pressure you to.
Assume your jitters are justified and create an “unstable economic system playbook” that features precedence issues, pricing guardrails, AI-enabled workflows, ALSP partnerships, and shopper communication plans.
Strengthen shopper belief. Investing in quarterly enterprise opinions, shared KPIs, and upfront scoping beats battling over end-of-matter reductions.
The Path Ahead?
Backside line: The previous 12 months’s income are actual, however not a promise.
“The legislation corporations that can outline the following period of authorized companies shall be decided not by how a lot they put money into expertise and expertise,” posits Ranathun, “however by how boldly they reimagine their whole working mannequin.”
Winners, he says, received’t essentially be decided by dimension or legacy, however they’ll be the corporations that act decisively now.
Deal with the present elevation as an invite to behave, to not calm down and admire the view.
Use at this time’s positive aspects to harden foundations: pricing that displays how work is completed, expertise that demonstrably improves outcomes, supply fashions that flex with demand, and shopper narratives that talk to enterprise influence.
Decide one observe to pilot higher pricing, one workflow to make measurably sooner with AI, and one shopper for a quarterly evaluation centered on outcomes. Repeat.
When the bottom shifts—because it all the time does—you’ll be standing on strong floor.
Learn the complete report and proposals from the Thomson Reuters Institute in cooperation with Georgetown College Legislation Middle’s Middle on Ethics and the Authorized Occupation.
Picture © iStockPhoto.com.
