Northern Ireland’s private sector shrank last month, with dwindling new business dragging the index down.

The Ulster Bank Northern Ireland Purchasing Managers’ Index showed a sharp decline, with the seasonally adjusted Business Activity Index posting 44.6. That was below the 50 mark that separates expansion from contraction, but a rise on August’s 42.4 reading.

New orders continued their downward trend, falling for the 58th month in a row.

Input costs continued to rise, mainly due to higher fuel costs, but that increase was not passed on to clients as strong competition forced prices lower during the month.

There was also a marked decline in employment as workloads fell and job cuts were seen for the 10th month in a row.

Ulster Bank’s Northern Ireland chief economist Richard Ramsey said conditions within global manufacturing remained particularly challenging, and services were showing a decline throughout the euro zone on average, although Ireland was bucking the trend.

“Like the eurozone, all sectors within Northern Ireland’s private sector posted further declines in output in September. Meanwhile the rate of decline in new orders accelerated for the services, retail and construction industries in September,” he said. “Overall, 2012 is set to mark Northern Ireland’s fifth consecutive year of private sector contraction both in terms of output and employment levels.”

He said profitability was a growing concern.

“A number of Northern Ireland’s flagship exporters have recently posted either very marginal profits or indeed losses despite rising sales and turnover,” he said. “Input cost inflation for Northern Ireland firms accelerated to a five-month high in September. Meanwhile the output prices of goods and services provided by local firms fell for the eighth successive month in September. The net result is a continued profits squeeze.”