Figures provided by the Ulster Bank PMI showed a fourteenth consecutive fall in the market, with a 31.4 reading recorded for July.
There has been little fluctuation since June's 29.4, which is measured against 50 - the point which separates growth from contraction.
Commercial and civil engineering also experienced a sharp fall, despite recovering slightly from June.
The housing market has remained the worst performing sector with its slice of the index dropping from 24.8 in June to 23.2 last month.
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Ulster Bank Chief Economist Pat McArdle said: "In June, overall activity, new business and employment all contracted at record rates. In July, the new business, employment and expectations indices set fresh lows.
"While the total activity index recovered slightly, all three sub-components remained well into negative territory indicating substantial rates of contraction in each case.
"The sharp fall in the employment index confirms anecdotal evidence of significant lay-offs around the time of the builders' annual Summer holidays.
"The last three months have seen the sharpest falls in the employment index since Autumn 2001. However, back then the index had fallen for about a year whereas now it has been in decline for the best part of two years.
"The fact that new business also recorded a record low means that further falls in activity and employment are likely.
"Confidence in the construction industry had held up well but plummeted in recent months with respondents citing the credit squeeze and the worsening domestic economy as the principal causes."
(PR/JM)
