WASHINGTON -- Sales of new homes dropped sharply last month to the slowest pace on record, the latest sign that the economic recovery is fading.

The Commerce Department said Wednesday that new home sales fell 12.4 percent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600. That was the slowest pace on records dating back to 1963. The past three months have been the worst on record for new home sales.

Weak sales mean fewer jobs in the construction industry, which normally powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

"If new homes aren't selling, there's no incentive to build more," said Nigel Gault, chief economist at IHS Global Insight.

Builders have been forced to compete with foreclosed properties offered at significantly lower prices.

Partly as a result, new home sales made up only about 7 percent of the housing market last year. That's down from about 15 percent before the bust.

High unemployment, slow job growth, and tight credit have kept people from buying homes. The industry received a boost this spring when the government offered tax credits to homebuyers.

Since they expired in April, the number of people looking to buy homes has dropped, even with bargain prices and the lowest mortgage rates in decades available.

More than 600,000 new homes were sold annually from 1983 through 2007. After the housing bubble popped, sales plunged to 375,000 last year. That was the weakest yearly total on record.

Builders have sharply scaled back construction in the face of weak sales. The number of new homes up for sale at the end of July was unchanged at 210,000, the lowest level in about 40 years.

Due to the sluggish sales pace, it would still take more than nine months to exhaust that supply, above a healthy level of about six months.

New home sales were down nationwide. They fell by more than 25 percent from a month earlier in the West, 14 percent in the Northeast, 9 percent in the South and 8 percent in the Midwest.

The median sales price in July was $204,000. That was down 4.8 percent from a year earlier and down 6 percent from June.