A membership survey found more than 90 per cent of companies that responded have seen work drop 25 to 50 per cent this year from a year earlier.
And that means over a quarter of office and site staff have been laid off, said Dick Bushey, executive director of the association.
"It's the smaller communities and the smaller contractors that are in trouble," he said. "Inuvik is bad and the Baffin has nothing happening."
With the drop in work comes a drop in employment.
For the first four months of 1996, there have been an average of about 960 people working in the construction industry, according to the NWT Bureau of Statistics.
That is down from a monthly average of 1,385 in 1995, 1,283 in 1994, and 1,081 in 1993. This year's figure is more in line with the 1992 average of 863.
"This is the most significant job loss drop recorded in over the last few years," Bushey said. "That backs up what we're seeing."
And the survey shows those who responded are not optimistic about the future.
Sixty per cent of the companies that took part in the survey believe work will not improve next year. Fifteen per cent, however, believe the amount of work will increase in 1997.
The remaining 25 per cent were uncertain what the future would bring.
The territorial government has said the belt tightening will continue next year. Public projects, such as building and renovating schools and rental housing, have shown the greatest decline over the year, the survey said.
If the work shortage continues and companies in small communities go under, who will go in there to do the work when it becomes available, Bushey asked.
The association, however, has suggestions on how to improve a gloomy situation:
Those taking part in the survey, which was conducted in September and early October, included general and trades contractors, suppliers, engineering and architectural consulting companies working in the NWT.