UPDATE 1-US CEO confidence index drops to record low-survey

(Adds details on report’s jobs component, background)

NEW YORK, April 3 (Reuters) - An index of chief executives’ confidence in the U.S. economy plunged to a record low last month, reflecting deeper concerns about the U.S. credit crisis and prospects for hiring.

Most CEOs expect a drop in U.S. employment levels over the next four to five months, according to a monthly survey by Chief Executive magazine released on Thursday.

The monthly confidence index stood at 84.1 in March -- 25.3 points lower than February and down by half since July, shortly before the subprime mortgage crisis hit. The figures compare with a base number of 100 when the index began in October 2002 and a peak of 182.4 in January 2006.

The magazine polled 321 CEOs between March 11 and March 26. A majority said they thought current conditions were “bad.”

“They’re basically saying, this is as bad as it gets right now,” said Chief Executive publisher Edward Kopko.

The drop in the index reflects concerns about the dimensions of the problems in the U.S. financial industry and that an economic slowdown could hurt demand for companies’ products and services.

Access to capital, increasingly costly oil and the prospect for higher corporate taxes were also cited as areas of concern.

Most CEOs said a recently passed stimulus package would not affect their businesses, and many said a greater government role in the economy was not welcome.

The survey results also suggest companies are becoming less willing to make investments or hire people, Kopko said.

For the first time, a majority of respondents -- 56.7 percent -- said they expected a drop in employment in the upcoming quarter. Only 13 percent gave that answer a year ago.

“We’re going to be in for a rough employment market the next four or five months,” Kopko said.

The forecast comes amid evidence of strain in the U.S. labor market. Initial applications for jobless benefits jumped by much more than expected last week and a four-week moving average of new claims reached its highest level since October 2005, the Labor Department said.

On Friday, the March employment report is expected to show the third consecutive monthly decline in nonfarm payrolls.

The CEO survey has proved to be a strong predictor of the job market, Kopko said. After the 2001 recession, it pointed to an upturn a few months before hiring picked up, and it suggested steady employment levels ahead of the 2004 election, which also turned out to be right.

The survey, whose components distinguish between current and future conditions, indicates the current downturn may last longer than in the past.

“They’re saying: ‘It’s bad in the current (environment), but I’m even less optimistic about the future,’” Kopko said, adding there was a disconnect between CEO attitudes and the recent performance of the stock market.

“The market jumped (this week) like maybe everything is behind us,” he said. “CEO attitudes are not quite reflective of that yet.” (Editing by Tim Dobbyn and Lisa Von Ahn)